Looking Back: Were EMC's 2009 Cuts Worth It?
EMC Corp. spent the first half of 2009 tightening its belt. The Hopkinton-based data storage giant announced 2,400 layoffs that January, and in April it told its remaining employees to expect a 5-percent reduction in pay.
Now EMC is hiring, its profits are soaring and analysts say it’s sitting in an excellent position within the IT industry. But there’s some disagreement about whether it’s achieved those results in spite of, or partly because of, last year’s cuts.
Predictive Modeling
Brian Marshall, an analyst with Gleacher & Co., said EMC’s actions were typical of the industry’s response to the downturn in business in early 2009.
Marshall said his impression is that the tech companies made the cuts in anticipation of tougher times than they actually ended up experiencing.
“Unfortunately, companies and management teams don’t have that forward visibility,” he said.
If they had had better crystal balls, Marshall doubts companies like EMC would have done what they did.
But to Rajesh Ghai of Thinkequity LLC, the cuts were a way of capitalizing on a bad situation. They offered the chance to get rid of the 5 to 10 percent of employees that, in any company, tend to contribute less than they cost.
“What these companies do during a recession is use the recession as an excuse to get rid of people they don’t want,” he said.
Ghai said that level of cutting can be good for business, but in a strong economy it can be too costly.
James Kelleher of Argus Research Co. said that regardless of the motives behind the cutbacks, they’re allowing the company to move in new directions by hiring different people in different locations in 2010. He said the company’s hiring helps it push in the direction of its majority-owned VMware business, the booming world of cloud computing and fast-growing overseas markets.
“They’re going to try to push into emerging economies,” Kelleher said.
EMC now has 47,000 employees worldwide, compared with 41,000 a year and a half ago. It rescinded the 5-percent pay cut at the start of 2010. All three analysts agree that EMC is poised to do well in the current environment.
“I think clearly EMC is in a very strategic area in terms of IT budget,” Marshall said, “And I think they’re going to garner more than their fair share in the future.”
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