In a virtual meeting this morning, employees at IBM's China-based research and development department were told of the impending closure of the regional operations. The current China-based R&D and testing functions will be moved to other overseas facilities, they were told. According to a Wall Street Journal report on the news, citing people who had attended the virtual meeting, the China function closure will affect over 1,000 people.
Readers will likely know the growing geopolitical tensions between the U.S. and China and their respective tech firms. Trade and equipment sanctions and stories about getting around these barriers are often in our news. However, IBM did not mention geopolitics when explaining its decision to employees.
The executive who hosted the virtual meeting, Jack Hergenrother, instead pointed at IBM's declining infrastructure business as the root cause behind the firm's China exodus. This bad news took some IBMers by surprise. The WSJ reports a swell of optimism at IBM China recently, with talk of the firm benefitting from its cloud computing and AI expertise and the current enthusiasm for such products. Nevertheless, improved competition from domestic suppliers and government directives such as Document 79, colloquially known as 'Delete America,' seems to have taken a heavy toll on the company.
Pondering over IBM's yearly revenue charts shared by the source makes the firm's China operations look unsustainable. Over the last ten years, Big Blue has consistently made less and less revenue in China. There was a slight rise in revenue in the post-Covid era, but in 2022, China's revenue was down 22.7%, and it fell a further 19.6% in 2023. Meanwhile, IBM's global revenue has seen positive growth.
IBM's China R&D operations are scattered across several major cities in China, including Beijing and Shanghai, and the source report suggests that they will all be closing, resulting in 1,000+ job losses. The WSJ hints that the staff may be able to continue their work for Big Blue by telling some of the employees that it is looking to expand R&D in other regions, such as in Bengaluru, India. With the complications involved, we don't think such a seismic change will appeal to many IBMers in China.
It isn't just foreign-owned businesses that have recently had financial troubles in China. Last December, we reported on a record number of Chinese chip-related companies shutting down during 2023 – around 30 a day on average throughout the year. This summer, a major Chinese semiconductor company went bankrupt, too, with billions in investments down the drain. And remember, this is all happening while markets are tech and AI are crazy worldwide. However, some well-placed Chinese firms are thriving, with companies like SMIC thriving as the chip war intensifies.
