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IBM to Pare 10,000 Europe Workers Amid Services-Unit Cost Cuts

IBM plans to cut about 10,000 workers in Europe, as it seeks to reduce costs in its services unit, a media report says.
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International Business Machines  (IBM) - Get International Business Machines Corporation Report, stuck in a seven-year downtrend, plans to lay off about 10,000 workers in Europe as it seeks to cut costs in its services unit, a media report says.

IBM said last month that it would spin off the beleaguered services division, as it shifts focus to its fast-growing cloud segment. 

The job cuts will slice IBM’s European workforce by about 20%, knowledgeable sources told Bloomberg..

“Our staffing decisions are made to provide the best support to our customers in adopting an open hybrid cloud platform and AI capabilities,” an IBM spokeswoman told Bloomberg.

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IBM’s stock recently traded at $123.86, down 0.5%. It dipped 7% year to date through Tuesday.

Morningstar analyst Julie Bhusal Sharma puts fair value for the Armonk, N.Y., technology giant at $125. 

“While IBM has tried to refresh its diverse offerings, we think IBM’s moat is deteriorating as the cloud transition chips away at IBM’s competitive advantage associated with customer switching costs,” she wrote in a report earlier this month..

“However, now with the rise of the cloud and open source software, the possibility of a mix and match IT infrastructure is real. While we think this is not a risk for many loyal IBM enterprise customers [especially those using IBM's mainframes], we do think the trend will continue to hurt all other sides of IBM’s business.”

To be sure, “its enterprise customers are particularly sticky, especially as IBM tends to serve very large customers within regulated industries. Therefore, any change with IBM will be a slow one in our view,” Sharma said.