IBM Corp. is cutting jobs in the first major layoffs under new Chief Executive Officer Arvind Krishna, according to reports late Thursday by Bloomberg and the Wall Street Journal.

It wasn’t clear how many jobs were being cut, though a source told the Journal that it’s several thousand, out of a massive staff of about 350,000 people.

Bloomberg said the cuts are in several units, including its Global Technology Services division, which does information technology outsourcing, as well as its Watson artificial intelligence unit, a longtime key focus of IBM’s recovery efforts. Cuts are being made in five states: California, Missouri, New York, North Carolina and Pennsylvania.

“IBM’s work in a highly competitive marketplace requires flexibility to constantly remix to high-value skills, and our workforce decisions are made in the long-term interests of our business,” the company said in a statement. It added in an apparent reference to the coronavirus pandemic that it will offer subsidized coverage to all affected U.S. employees through June 2021.

However, the job cuts may relate less to the pandemic’s effects on tech spending and the overall economy than IBM’s own struggles to return to consistent growth. Cloud computing offered by the likes of Amazon Web Services Inc. and Microsoft Corp. have blunted spending on hardware, software and services offered by IBM and other tech stalwarts such as Hewlett Packard Enterprise Co., which also today announced cost cuts after reporting sharply lower revenue in its fiscal second quarter.

IBM’s cuts don’t come as much surprise, given its own recent quarterly report. The company withdrew its earlier full-year 2020 guidance because of the COVID-19 crisis and said it will “reassess this position based on the clarity of the macroeconomic recovery at the end of the second quarter.”

“It was a tough decision to withdraw guidance, but this is not the quarter to declare clarity,” Krishna said at the time.

Some 60% of IBM’s revenue come from low-growth or no-growth services, something that Dave Vellante, chief analyst at SiliconANGLE’s sister market research company said needs to change.

“Services gives IBM world-class coverage and deep industry knowledge,” he said. “But services margins are low, and it has diseconomies of scale and compresses IBM’s revenue multiple and subsequent valuation. To secure IBM’s future, the company must dramatically grow other parts of its business.”

Most of all, that means cloud services, including from its massive acquisition of Red Hat Software. Krishna has said that “IBM must win the architectural battle for cloud,” but it’s not yet apparent how and whether he can do that as AWS, Microsoft and Google LLC surge in cloud computing.

Meantime, it must deal with an overall projected 5% decline in information technology spending this year that will be even worse in areas that aren’t cloud-related services. And it’s doing so after investing far less in research and development needed to come up with new products than its cloud competitors.

“IBM is in a challenging position, where the bets of the past have not fully taken off,” said Constellation Research Inc. analyst Holger Mueller. “Its own cloud failed, Watson did not deliver, blockchain did not grow as expected. In the current environment customers are not pursing projects as they used to and that can hit all services businesses, and that’s where IBM’s big exposure is at the moment. So layoffs in this area do not come as a surprise.”

Photo: Robert Hof/SiliconANGLE