Tech layoffs: IBM to cut 3,900 jobs across IT services sector, SAP to cut 3,000 jobs

Yahoo Finance Live anchors discuss the latest companies to announce job cuts as SAP and IBM join tech giants in laying off workers.

Video Transcript

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BRIAN SOZZI: All right, the layoffs that are rippling through the tech industry aren't showing any signs of easing. IBM is the latest tech giant to do so. The company announced it will cut about 3,900 jobs, mainly in its IT services segment. We're seeing shares down about 2% here in the premarket.

Surprised to see these layoffs by IBM. It was a good quarter for the company, showed almost 200 basis points of year-over-year operating margin improvement, so good from that standpoint. The outlook was reasonably OK. But again, another big-cap tech company using the cover of an Amazon and a Microsoft to lay off workers and maybe improve their bottom line.

BRAD SMITH: Yeah, I mean, within this, the hybrid cloud revenue, that continued to look strong in the most recent quarter. That was $22.4 billion worth of the company's business. That was up 11%. And then, additionally, you look at how they're continuing to generate free cash flow, that came in at about $9.3 billion here.

But within the layoffs and what they're looking at in this environment said-- Arvind Krishna, the IBM chairman and CEO, said within this earnings release that clients in all geographies, yeah, they're embracing the cloud, but this remains a force in today's business environment. However, looking ahead to 2023, full-year revenue, consistent growth, mid-single digit model. What's not talked about within that is what kind of cuts, or at least normalization, needs to take place, not just at IBM, but we're seeing that taking place on the headcount side at many of the companies in tech right now.

JULIE HYMAN: Yes, most definitely. This is not an across-the-board cutting in every area of the company. And while not diminishing those 3,900 folks are going to lose their jobs, this is-- I mean, I won't say it's a rounding error at IBM, but the company has 260,000 people who work there. So 3,900 is not a huge number. And at the same time, the company is still going to be hiring-- it said that explicitly-- in higher-growth areas.

So as it tries to concentrate on that hybrid cloud, presumably that's the area in which they're going to be hiring, maybe cutting back in some of those other areas. That said also, software and the infrastructure units kind of saved IBM this quarter because those two units grew where analysts were expecting a decline. So the mix, I think, is really important, and we can't lose sight of that.

There is, by the way, another tech giant that cut jobs, and that was SAP, 3,000 jobs, it says, it expects to cut this year. And it's also exploring a sale of its remaining stake in Qualtrics. Qualtrics shares were going up on that news.

BRIAN SOZZI: Yeah, I just put this tweet out there, just one quick note on SAP. I do wonder if SAP-- we have activist-- activists swirling-- if this could be another potential activist target. Since CEO Christian Klein got into this business or was appointed as CEO October 2019, stock is down. It's down significantly, I believe 26%.

You have the S&P 500 up close to 37% here. At what point does this company or does an activist crunch numbers on SAP saying there's a lot of bloat, likely a lot of bloat in a company like this after a lot of acquisitions in recent years, and should they be cutting faster and cutting further and spinning off some of these divisions a lot quicker than what appears to be happening?

BRAD SMITH: It's-- look, as a former employee of the company, it's a massive business. It is not just global in nature. But the number of different business units that they have that make up everything under a cloud solutions project, everything under-- and what was formerly classified specifically as a CRM division or all of the different ways that they have basically broken out the business and kind of, in some instances, overcomplicated and oversiloed to the point where it probably could be simplified. And any activist investor would probably take a look under the hood and echo those same comments that you just made as well.

BRIAN SOZZI: Good perspective there.