EMC to prune back workforce by 4 per cent

In what was described as its first bona fide layoffs, storage industry leader EMC today announced plans to cut its workforce by 4 per cent through the dismissal of about 1,100 employees during the next few weeks.

The company also said it will try to boost sales by increasing the number of its quota-carrying sales and systems-engineering positions, partly through a redeployment of several hundred workers who currently hold other jobs. In addition, EMC plans to reduce its use of consultants and contractors, rein in its travel budget and delay some planned facilities expansion projects.

The cutback moves come after the company twice reduced its business outlook, most recently warning last month that financial results for the year as a whole would be lower than expected. A week later, EMC reported a first-quarter showing in line with that warning, disclosing that profits totaled $US398.8 million -- up from $332 million in the same period of last year, but about 10 per cent less than analysts had predicted.

The upcoming layoffs will actually be the second round of job cuts at the company this year, following the dismissal of several hundred workers in February. However, EMC officials have described those dismissals as "performance management cuts" that were part of a stringent and ongoing employee review process at the company.

About three-quarters of the 1,100 layoffs will occur in North America, with 300 workers due to be let go from various groups at EMC's headquarters in Hopkinton, Mass. Most of the remaining job reductions will occur in Europe, the company said. The cuts will leave EMC with about 23,400 employees, about the same number that it had at the beginning of the year.

EMC said the workforce reduction will eliminate "redundancies and overlaps in certain field operations," reduce the size of several corporate departments and continue a reduction of the workers needed to support a "managed decline" of the Unix server business that the company bought as part of its 1999 acquisition of Data General Corp. The layoffs and employee redeployments will result in a second-quarter charge of about 1 cent per share, it added.

Tony Prigmore, an analyst at Enterprise Storage Group, described the layoffs as a sensible response to the disappearance of numerous dot-com big spenders and the tightening of corporate IT budgets that's being driven by the weakened economy. "It's another validation that there's a softening in the [storage] business," Prigmore said.

But EMC's lower-than-expected results and the company's need to cut costs don't mean that users are shifting away from its top-dollar storage devices in favor of ones from rival vendors, Prigmore added. "The one thing about EMC is you don't have to worry about them returning to profitability," he said. "They're [still] outrageously profitable."

EMC spokesman Mark Fredrickson noted that the company said last month it would take action on the cost side because of the lowered business forecast. But EMC continues to predict revenue growth of 20 per cent or more for this year and expects to finish the year with about 1,000 more salespeople and systems engineers than it had in January, Fredrickson said.

In addition, EMC still plans to spend about $1 billion on research and development while "investing heavily" in its internal IT infrastructure and looking to hire additional workers in "several strategic areas," according to today's announcement. The company added that its own IT spending is due to increase by a double-digit amount this year.