It has been confirmed today that a Deutsche Telekom AG (ADR) (OTCMKTS:DTEGY) (FRA:DTE) (ETR:DTE) subsidiary is planning to lay off 4,900 employees from its T-Systems IT unit in Germany during the next 24 months. The bad news is not as bad as expected, however, as the reported number of layoffs is less than the earlier rumors that between 6,000 and 8,000 jobs were going to be eliminated.
Deutsche Telekom’s T-Systems provides a variety of consulting services for large enterprises including Airbus Group NV (EPA:AIR) (OTCMKTS:EADSF), Phillips 66 (NYSE:PSX) and Allianz SE (ADR) (OTCMKTS:AZSEY) (FRA:AZE). The company has more than 50,000 employees globally, with 30,000 based in Germany.
This planned reduction in force by Deutsche Telekom AG (ADR) (OTCMKTS:DTEGY) (FRA:DTE) (ETR:DTE) is likely to garner a response from labor organizations in Germany. There was already one labor-organized demonstration protesting the rumored cuts at the Deutsche Telekom headquarters in Bonn back in January.
A Deutsche Telekom AG (ADR) (OTCMKTS:DTEGY) (FRA:DTE) (ETR:DTE) commented regarding the lay off earlier today. “Throughout this period, we intend to ensure that the resulting and industry-inherent staff restructuring takes place in consideration of social aspects. The T-Systems business model needs to keep developing in pace with the increasing level of digitisation,” the spokesman said. “We will transform conventional ICT services, which are based largely on classic forms of outsourcing, into services that we can offer profitably on a lasting basis.”
T-Systems is Deutsche Telekom’s “problem child”
Analysts had been expecting layoffs at T-Systems for some time now, as a restructuring was clearly in order. The German news outlet Der Speigel recently ran an article calling T-Systems Deutsche Telekom’s “problem child”, and pointing out the concern “has earned very little money and has barely recorded growth” over the last year or two. It is also of interest to note that today’s move to reduce labor comes when T-Systems is transitioning away from traditional IT support services to higher-margin services such as cloud provisioning.
The decision to diversify out from its IT support core services has been made clear by several partnerships that T-Systems has announced over the last few quarters. Last month T-Systems announced it was partnering with Google Inc (NASDAQ:GOOG) and would begin offering customers Google Enterprise products; and just a couple of weeks ago, the company announced that it would also be offering salesforce.com, inc. (NYSE:CRM) products through a new CRM partnership.