Thread regarding IBM layoffs

Right now nothing is going to replace IBM in the markets that it dominates. Just like Class 7 and 8 trucks are built by a select few manufacturers, IBM will probably continue to be the builders of mainframes...the semi trucks of the computing world.

However...just as you don't look to semi truck builders for innovation beyond occasional efficiency improvements, the world is no longer looking to IBM for innovation in computing beyond...you guessed it, the occasional efficiency improvements. For a world that constantly wants "new and improved", IBM can occasionally deliver on "improved"...but it hasn't delivered on "new" for a very long time. In fact, every attempt at something "new" has been abandoned and sold off, sometimes for pocket change.

TLDR: IBM is what stock analysts call a mature business. They deal in legacy products for a niche market, and they are indeed dominant in that market. But that market isn't growing, and IBM's attempts to grow beyond that market have had questionable success. As for the OP, it looks like they'll be getting out of China too.

2ygm Your post has merit, AND yes Quantum is still in its infancy and may never grow up, BUT consider this

https://www.fool.com/investing/2024/08/29/ibms-next-mainframe-will-pack-an-ai-punch/?source=eptyholnk0000202&utm_source=yahoo-host-full&utm_medium=feed&utm_campaign=article&referring_guid=8657df82-fdd8-4f09-9e73-93f2354dfa17

IBM has not taken their foot off the gas when it comes to protecting their Mainframe footprint. Yes it’s a “Niche” market, but it’s hard to imagine what will replace it given IBM’s commitment to the Fortune 500 and their HW investment in it. Remember there is 2 trillion dollars of legacy code that runs on mainframe, and the Fortune 500 isn’t going to trust that code stack to Intel or the cloud as they have far too many reliability issues. If they change, they are going to want reliability, and that is something over the last 40 years that every other HW manufacturer hasn’t been able to offer. Most companies have accepted that, and asked IBM to focus their change efforts on the middleware and legacy SW components. IBM has obliged via moving into Redhat and other Hybrid cloud SW solutions.

[Full article referenced in post @gil+1uchUSVh quoted below].

https://www.wsj.com/business/ibm-shuts-china-r-d-operations-in-latest-retreat-by-u-s-companies-b37cd9a0

IBM Shuts China R&D Operations in Latest Retreat by U.S. Companies --
Closure will affect more than 1,000 people; jobs to be added in India, employees are told

By: Raffaele Huang
Updated Aug. 26, 2024 8:54 am ET

IBM is shutting down its China research and development department, the latest retreat from the country by top U.S. technology companies.

The company is moving its China R&D functions to other overseas facilities, Jack Hergenrother, an IBM executive, told employees at a virtual meeting on Monday morning, according to employees who attended. Hergenrother said IBM faced intensifying competition in China with its infrastructure business declining in the past few years, the employees said.

Hergenrother said IBM plans to concentrate its R&D in several regions, the employees said. IBM has told some employees it is adding engineers and researchers in places outside China including in Bengaluru, India, according to employees who were briefed.

The closure will affect more than 1,000 people, most of them working for the company’s R&D labs and focusing on the development and testing of products such as enterprise software, the employees said. They are based in several Chinese cities, including Beijing and Shanghai.

In a statement, IBM said it “adapts its operations as needed to best serve our clients,” without giving details. The changes won’t affect IBM’s ability to support clients in China, it said.

Geopolitical tensions between the U.S. and China have led many multinational companies to reassess their business in China, with some laying off employees and relocating operations to other countries.

IBM once saw China as a major growth market, but its market share has tumbled in recent years as local competitors upgraded their services and Beijing pushed Chinese buyers to purchase more from domestic technology suppliers, in a campaign dubbed “Delete America.” IBM said its revenue in China fell 19.6% last year.

U.S. companies doing business in China also face stricter scrutiny by American policymakers in strategic areas such as artificial intelligence. Microsoft is downsizing its cloud-computing and AI-research operations in China and asking local employees to consider transferring to other locations.

Some employees said IBM’s decision to close its R&D operations came as a surprise after executives recently talked up plans to win new business using IBM’s strengths in cloud computing and AI. In March, Chen Xudong, IBM’s chairman for Greater China, held a news conference in Beijing and said the company wanted to help automakers and multinational companies in China deploy generative AI.

Employees from the closing IBM labs said they have been approached by headhunters over openings related to AI and cloud computing at Chinese tech companies.

IBM has done business in China for four decades and once counted the country’s biggest telecommunications carriers, banks and energy giants among its customers.

Since the early 2010s, China has become a tougher market, as government agencies and state-owned businesses started replacing IBM servers, Oracle databases and other products of U.S.-based companies. Revelations by former National Security Agency contractor Edward Snowden in 2013 that U.S. authorities had hacked into Chinese mobile communications and corporate networks accelerated the shift.

At one time, IBM saw China as a R&D hub for global growth markets, but higher personnel costs and compliance risks have made the Chinese operation less attractive for that role, employees said. In 2021, IBM closed a China lab that focused on research into cutting-edge areas after more than two decades of operation.

Quantum computers are nothing more than lab experiments right now. It took decades to get the Von Neumann architecture into a workable state, and it doesn't look like quantum computers will be developed any faster. As for Linux on mainframes, those machines already exist. However, the customer base has spoken...you might see zLinux in legacy mainframe sites, but most customers use something else.

It's unlikely that mainframes will be replaced, but it's also unlikely that they will be a mainstream computing solution in the future. They are a niche item for niche markets...you buy them if you really need them, but most customers will go elsewhere.

1tpe 3 very fair questions

1. Remember China and India started investing in education for at least 40 years (2 generations) China’s demographics 1.2 billion going to 700 million over the next 20 years favors labor inflation. Indias demographics 1.3 billion staying stable or growing over the next 20 years favors labor commoditization. As such Africa’s educated workforce (whose entire continent population is less than China or India) will inflate as they modernize. This nets out to India winning the labor war as they will keep suppling needed labor.
2. A rebound will not backfire on IBM. Kyndryl proved that keeping on shore workforce population in the 8-10% of worldwide total work force is profitable and stable. IBM is now in the process of implementing that model. There is no going back IBM will downsize USA and Northern Europe for offshore labor. The Internet is the great equalizer when it comes to commoditizing labor.
3. Yes something will replace the mainframe, BUT not in our lifetimes. Why? Because IBM is a monopoly when it comes to mainframe and they have already proposed two replacements A LINUX mainframe, and a quantum computer. If something else comes along, IBM will just lower the price of the mainframe HW and make it up with the SW and consulting division. Aren’t monopolies fun. Everyone has predicted the death of the mainframe since the 1980’s, and it hasn’t happened. Why? Because IBM makes it cheaper to keep it, vs the risk of switching

If they can chop 1000+ in a weekend, I would say this has been prepared for very very long ...

@1fya

Great analysis of what is playing out right now.

Can you tell us what happens in the long term when India's costs start to rise while Africa's costs could be among the lowest ?

While Global IT is generally in the dumpster right now, in event of a rebound, could the strategy backfire in the US and Europe ?

And since no technology lasts forever, what happens when the mainframe is superseded by something smaller, cheaper and more secure ? It could likely happen, like it or not.

This action confirms to me that IBM has pursued a 2 pronged strategy over AK’s leadership.

1. Redistribute IBM headcount to 50% India, 25% Americas, and 25% Europe/asia/africa
2. When viable, labor cost is to be viewed as a commodity and lower cost should always be pursued. (the China move was more about costs and less about politics)

NOTE number 1 from above has now mostly been achieved, and number 2 will now become the primary focus. It’s all about lowering costs

@1woa

If anyone was taking off with a golden parachute leaving the smokin' ruins behind, the suggestion would be to look over one's shoulder regularly for the eventual someone or something to show up. Things have a way of catching up with ya. Just look at what happened at those nice folks at Enron or "Chainsaw Al" at Sunbeam. Plenty more examples like that all over Wall Street.

@jqp+1uchUSVh "What's R&D doing?" - yeah. That's what's going to ki-l IBM long term. You can't /just/ live on legacy sales - but you /can/ look like a business genius for increasing profit year-on-year by cutting your development orgs unsustainably - and then naffing off with a golden parachute before things go bad... not that I'm suggesting AK would do that, naturally.

I worked with a few of the China team in Systems (now Infrastructure) back in the day. I know they've got a... complicated... political climate, but the engineers weren't bad - and we were generally able to keep them together more than our India team (who, because of the apparently low salaries IBM paid, often would end up rotating out to other companies once they got their minimum term served).

It's always frustrating training someone across international timezones and language barriers, for them to leave 3 months later. The India team had some really bright people in it too - just they never stuck around.

The jobs were transferred Per the Wall Street journal Most will land in India

https://www.wsj.com/business/ibm-shuts-china-r-d-operations-in-latest-retreat-by-u-s-companies-b37cd9a0

AI is an excuse. IBM is a server and enterprise software vendor along with a consulting operation. R&D costs have been expended over the years, but how much R&D are they really doing now? (Be honest!) They have legacy sales and ongoing license revenue, but how much staff do you need to keep that going?

Setting aside the structural business issues, it's no secret that American companies are getting out of China. This has been the case for some time. The only reason to be in China in the first place was to get access to the Chinese market. Without that access, there is no reason to have a presence there of any kind.

@gol

You didn't mention job elimination - could all these jobs no longer exist because of the brave new world of wonderful AI ?

Or is AI just a convenient excuse since R&D is considered an expense at the end of the day ?

I, for one, can't imagine where the Indian-born leader of IBM might want to move all those jobs to. Nor would I want to speculate about what the man who expressed on a publicly documented call with Indian Prime Minister Modi that IBM intended to make a substantial investment in India’s future, might do.

We acknowledge that the mods on this site don’t like people expressing facts and sentiments that don’t exalt the very great and infallible leader of IBM. So I would never suggest that offshoring thousands of jobs from any country to India is anything but the right and proper thing to do, extremely fair and just, and beyond reproach.