Deutsche Telekom is to sell the mainframes part of T-Systems to IBM in a deal valued at about €860 million ($983 million) as it continues to work on a turnaround at the underperforming IT business, according to press reports originating with Germany's Handelsblatt newspaper.
The transaction would see 400 employees at T-Systems International GmbH move to IBM Corp. (NYSE: IBM), according to Handelslblatt, which cites an internal memo as the source of its information. Deutsche Telekom's Systems Solutions operating unit, which includes most of its country-level T-Systems subsidiaries, had nearly 38,000 employees at the end of September, according to Deutsche Telekom's last earnings report.
T-Systems has reported a sequence of disappointing results as it struggles to adapt to new customer needs and cloud-based services in a tough market environment. Despite growth in new business areas such as cloud computing and the Internet of Things, revenues have flatlined because of a decline in traditional business areas.
Revenues for the first nine months of 2018 were about €5.1 billion ($5.8 billion) -- roughly the same as a year earlier -- but the company's adjusted operating profit shrank to just €25 million ($29 million), from €76 million ($87 million) a year earlier. Deutsche Telekom AG (NYSE: DT) blamed investments in growth areas and the cost of its transition to all-IP technology for the decline.
The latest report about a sale to IBM comes a few months after T-Systems was reported to have agreed a plan with trade unions to cut around 5,600 jobs in Germany, where it is thought to employ about 17,000 workers. In June, the company was said to be planning as many as 10,000 layoffs in an effort to save about €600 million ($686 million) by 2021. (See DT's T-Systems Agrees Plan to Cut 5,600 Jobs ⎼ Report and DT Will Cut 10k Jobs at T-Systems – Report.)
Overall headcount at Systems Solutions has changed little in the past year, falling to 37,751 in September from 37,924 a year earlier.
T-Systems CEO Adel Al-Salah, who took charge of the business at the start of 2018, is apparently keen to invest savings from job cuts in new digital and cloud services.
Light Reading approached Deutsche Telekom about the latest reports but had yet to receive a comment at the time of publication. The German operator is reported to have told Reuters that it will not completely exit the mainframe business but instead collaborate with IBM, starting in May this year.
Cost savings at T-Systems could help Deutsche Telekom to realize its target of slashing €1.5 billion ($1.7 billion) in operating costs outside the US market by 2021, compared with 2017. (See DT Targets €1.5B in Automation Savings, Misses Former Target.)
The German incumbent has indicated that around €750 million ($858 million) of those savings will come from headcount reductions across the entire organization as it invests in automation and new digital technologies. The other €750 million ($858 million) is expected to come from the sale of real estate and measures related to the shutdown of old PSTN systems.
Deutsche Telekom cut about 1,000 jobs in 2017 and another 750 in the first nine months of 2018, leaving it with 216,606 employees in September last year, according to earnings statements. Headcount has declined from 229,686 in 2012.
Other major telcos in Europe and North America have also cutting headcount to boost profitability while sales growth remains sluggish. (See AT&T, Time Warner Shed 11K Workers in First 9 Months of 2018.)
— Iain Morris, International Editor, Light Reading