International Business Machines Corp. (IBM:US), cutting costs in the wake of its first quarterly earnings shortfall in eight years, ordered some U.S. contract workers to reduce their hours, according to a memo obtained by Bloomberg.
CDI Corp. (CDI:US), a provider of staffing and outsourcing services, told employees working on IBM jobs that they should bill for no more than 36 hours a week in the second quarter, according to the memo. CDI, based in Philadelphia, cited “challenging economic conditions” in explaining the move.
“You should understand that this action is being taken by IBM to retain as many CDI resources as possible for future work,” Eric Gonzalez, a delivery executive, said in the memo. “This action is not a reflection of any dissatisfaction over the services provided by you or CDI but rather an IBM business decision.”
When it reported earnings on April 18, IBM said it would spend $1 billion cutting jobs in its own workforce to reduce expenses. The company, famous for methodically setting and meeting its goals, jolted shareholders by posting first-quarter profit of $3 a share, missing the $3.05 predicted by analysts. The shares tumbled almost 10 percent to $187.83 over the following two trading days.
IBM has regained some of that ground over the past 10 days. The stock climbed (IBM:US) 1.4 percent to $202.39 at the close today in New York, bringing it within $5 of its pre-earnings value. CDI shares, meanwhile, fell 4.9 percent to $14.04.
Vince Webb, a CDI spokesman, declined to comment on the memo. IBM, the world’s biggest computer-services provider, accounts for 20 percent of CDI’s revenue, according to the contractor’s annual report.
James Sciales, a spokesman for Armonk, New York-based IBM, also declined to comment on the memo. The company relies on contractors to manage labor costs on information-technology projects for clients, he said.
IBM told CDI that the change in hours would only be in effect during the second quarter, according to the memo. The employees aren’t allowed to work beyond 36 hours unless approved in writing by IBM management.
To contact the reporter on this story: Sarah Frier in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Nick Turner at email@example.com