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    Highlights for week ending October 19, 2002
  • IBM reported its 3rd quarter earnings on Wednesday, October 16th. The following are links to articles about the IBM earnings report:
    • IBM Investors' Web page, including audio comments from John R. Joyce, Senior VP and CFO.
    • Reuters Business Report: IBM Earnings Drop on Weak Demand. Excerpt: "IBM said its net income including its hard disk drive business was $1.3 billion, or 76 cents per share, down from $1.6 billion, or 90 cents per share, a year earlier. Discontinued operations contributed a loss of $381 million, or 22 cents per share."
    • TheStreet.com: IBM Beats Estimates, Unspectacularly.
    • Reuters: IBM pension plan to hurt earnings next year-CFO. Excerpt: "'We are looking at reducing our expected rate of return assumption for 2003 in the range of 8 (percent) to 8.5 percent', he said in a conference call with analysts. 'We believe that this will affect the income statement by roughly $700 million next year.' He added that IBM, which has been cutting jobs and exiting businesses, would more than offset this impact through $900 million in productivity savings from the restructuring."

  • ComputerUser: IT Unions III, The Hidden Story Behind IBM's Resurgence. Excerpts: "After my mea culpa column (IT Unions II), in which I pretty much conceded that my view of unions naively assumed management integrity, I thought I was through with this topic for a while. Not so. I have received more than a dozen e-mails from current and former IBM workers chiding me for claiming that IBM is a pretty good place to work. I based my opinion on conversations with young friends from IBM over the years who would like nothing better than to retire from IBM at age 65. From the e-mails, it seems my friends' views are somewhat unusual.

    In the early '90s, many of those who e-mailed had the same ambitions as my friends do now. They wanted to retire from IBM with their good pensions at age 65. But their hopes were dashed by a series of cost-cutting moves that began in 1993 and have become as much a part of IBM's culture since as the color blue. The picture that emerges from these readers' e-mails is that of an IBM under then-CEO Lou Gerstner that consistently delivered shareholder value at the expense of its loyal and talented employees. In the last decade, IBM has slashed tens of thousands of jobs (mostly older, higher-paid workers), changed the entire benefits package typified by what used to be the best pension fund in the industry, and outsourced much of its operations offshore."

    IBM is a good case study in a company that appeared to sacrifice employee talent and loyalty for (short-term) shareholder value. Leaving aside the moral implications of this decision, it does have economic implications. Whereas IBM once was a bastion of IT talent, sacrificing some of its brightest and most experienced people for the sake of the bottom line leaves it in a more ordinary position now. Like most big IT companies, IBM cuts corners on talent: It hires a lot of H1-B workers to fill the ranks (many of whom are treated by their handlers and agents like slaves, but that's another story); it outsources to places like India and now China for programming and other tasks; it favors the high energy and enthusiasm of recent graduates over the maturity and careful attention to detail of 30- and 40-somethings.

  • Several retirees have posted reactions to the IBM retiree medical plan for next year:
    • "im4texas" comments. Excerpt: "All those wasted years telling about the salary package being made up of salary plus benefits. Nobody to protect those benefits. So now I sit looking at the IBM plan for 65 and over and see that I can get much better coverage from ARP, Blue Cross Blue shield, Prudential and others at a lot less than what IBM wants to take out of my monthly retirement. Where is (the) IBM contribution?"
    • "tx_rodmaster" comments. Excerpt: "just got my package today. What a MAJOR Ripoff !! I have been on Self Managed (Plan 2) (self and wife both Medicare) and my costs have skyrocketed from a monthly cost of $67.00 to $273.00 for their 'new equivalent' plan. A grand total increase of $206 per month. A 307% increase in 1 year. There is no sense sending letters to MacDonald. He's a peon in the corporate chain. This was all done way above him. If pension treatment was 'vapor profit' what can we call these medical profits."
    • Gene Vaughter comments. Excerpt: "The thing that makes me most angry about this disgusting situation is this: For most of my 29 years at IBM I felt that I could talk to an IBM administrator at any level and they would give me information with my best interest at heart. What a joke that is today. My feelings now are, if I call IBM they will use whatever information I give them to screw me."

  • "over20ibmer", an active IBMer, provides details on the increased cost of his 2003 "Self-Managed" medical plan.

  • eWeek: (IT) Workers of the World, Unite. Excerpt: "As the IT spending slump drags on, resulting in lots of layoffs and little hiring, the pain of unemployed and underemployed IT workers is starting to express itself in some strange ways. This week, for example, WashTech, a Seattle-based affiliate of the Communication Workers of America union, picked up on a story that a programmer in Sacramento has offered the Information Technology Association of America $1,000 if they can find his friend an IT job. The programmer didn't target the ITAA because of its job placement prowess. Instead, the programmer was trying to poke holes in the ITAA's widely quoted (and frequently doubted) estimates that, although the number of IT jobs in the U.S. has shrunk by 500,000 over the past year, within the next 12 months employers will be looking hire for 1.1 million IT positions, 600,000 of which will go unfilled because employers can't find qualified workers."

  • "dr_bendoveru2" comments on a report about the SAS Corporation that he saw on the CBS Evening News. Excerpt: "They offer free medical to all employees, and a lot of other super perks, it's rated as one of the best companies to work for). The CEO Jim Goodnight had this to say about his employees at the close of the segment. 'I guess 95% of my assets drive out thru the front gate every evening and it's my job to bring them back'."

  • TheStreet.com: Pension Woes Might Hit IBM's Earnings. Excerpts: "When it comes to earnings, investors in IBM need to think about more than just its $86 billion business. Profits at the giant technology outfit are likely to take a hit from an unexpected source: its pension plan." ... "But while the market's downward gyrations could undoubtedly put more pressure on IBM next year, other analysts say they're not too worried. 'We believe that the reduction in income from the defined benefit pension plan will be offset with expense reductions and do not believe IBM will need to infuse cash into the pension plan in the future,' wrote Lehman's Dan Niles in a note upgrading the stock. Lehman has done recent banking for IBM."

  • Financial Executives International: Pensions: Questioning The Basic Assumptions. Excerpt: "For years, many corporations have been using a lofty presumed return rate for their pension investments. When Fortune magazine editor Carol Loomis sat down for an interview with Warren Buffett late last year, the conversation could have led in many directions: the economy, the stock market or the tenets of value investing. Instead, it mostly led in just one: U.S. pension fund accounting and the current pension return assumptions underlying it. Buffett espoused in that interview (and has continued to espouse since) that pension accounting is likely to blossom into yet another scandal besmirching America's corporate boardrooms - and is a problem potentially far larger than the accounting shenanigans caused by companies such as Enron Corp. or Adelphia Communications."

  • New York Times: Treasury May Help Workers On Details of Pension Choices, by Ellen E. Schultz. Excerpt: "Typically, pensions are structured so lump sums are worth far less to most workers than when the pension is taken as a monthly payment -- as much as 50% less. However, 90% or more of departing employees choose the lump sum, rarely realizing it has a far lower value because they lack adequate information to compare the choices, according to lawmakers who have studied the issue. Employees as a result often receive 20% to 50% less from their pensions than they otherwise would. Those most likely to be affected are long-term employees in their 40s to mid-50s." If link is broken, view Adobe Acrobat version [PDF--56 KB].


  • New York Times: The Forgotten Domestic Crisis. Excerpts: "Look at what happens to the health-care dollar as it wends its way from employers to the doctors and hospitals that provide medical services. Private insurers regularly skim off the top 10 percent to 25 percent of premiums for administrative costs, marketing and profits. The remainder is passed along a gantlet of satellite businesses — insurance brokers, disease-management and utilization-review companies, lawyers, consultants, billing agencies, information management firms and so on. Their function is often to limit services in one way or another. They, too, take a cut, including enough for their own administrative costs, marketing and profits. As much as half the health-care dollar never reaches doctors and hospitals — who themselves face high overhead costs in dealing with multiple insurers." If link is broken, view Adobe Acrobat version [PDF--28 KB].

  • New York Times by Paul Krugman: For Richer. (Editor's note: This is a "must read" article). Excerpts: "Yet glimpses of the lifestyles of the rich and tasteless don't necessarily add up in people's minds to a clear picture of the tectonic shifts that have taken place in the distribution of income and wealth in this country. My sense is that few people are aware of just how much the gap between the very rich and the rest has widened over a relatively short period of time. In fact, even bringing up the subject exposes you to charges of 'class warfare,' the 'politics of envy' and so on. And very few people indeed are willing to talk about the profound effects -- economic, social and political -- of that widening gap. Yet you can't understand what's happening in America today without understanding the extent, causes and consequences of the vast increase in inequality that has taken place over the last three decades, and in particular the astonishing concentration of income and wealth in just a few hands. To make sense of the current wave of corporate scandal, you need to understand how the man in the gray flannel suit has been replaced by the imperial C.E.O. The concentration of income at the top is a key reason that the United States, for all its economic achievements, has more poverty and lower life expectancy than any other major advanced nation." If link is broken, view Adobe Acrobat version [PDF--66 KB].

This week on the Alliance@IBM Site:

"The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little." — Franklin D. Roosevelt
This site is designed to allow IBM Employees to communicate and share methods of protecting their rights through the establishment of an IBM Employees Labor Union. Section 8(a)(1) of the National Labor Relations Act states it is a violation for Employers to spy on union gatherings, or pretend to spy. For the purpose of the National Labor Relations Act, notice is given that this site and all of its content, messages, communications, or other content is considered to be a union gathering.