IBM Shuts Down China R&D, Impacts 1,600+ Employees

On the morning of August 26, IBM officially announced the closure of its research and development (R&D) department in China, affecting more than 1,600 employees. This announcement follows recent reports of IBM restricting internal network access for employees in China working on R&D and testing.

According to a report by Jiemian News, Jack Hergenrother, Vice President of Global Enterprise Systems Development at IBM, revealed the decision during an all-staff meeting at the IBM China Systems Center (CSL). He stated that IBM's infrastructure division is shifting the R&D activities from the China Systems Lab to other international IBM infrastructure sites. The company is in the process of withdrawing all R&D operations from China.

Hergenrother explained that declining infrastructure business in China over recent years prompted IBM to make this challenging decision. The company aims to relocate its operations to regions closer to its customers, aligning with market opportunities.

An employee from the IBM China Systems Center reported that discussions are ongoing between local management and IBM headquarters regarding layoffs and compensation packages. Employees have requested compensation terms including 2N (where N represents the number of years of service, with no cap on monthly salary), a six-month transition period, cash compensation for unused annual leave, and stock option buyouts.

IBM has confirmed that the shutdown will result in a complete exit from R&D in China, affecting over 1,600 employees. In a statement to the media, IBM said, "IBM will adjust its operations as necessary to best serve our clients. These changes will not impact our ability to support customers in the Greater China region."

The closure impacts two key business units: the IBM China Development Center (CDL) and the IBM China Systems Center (CSL), both of which were primarily engaged in R&D and testing activities. IBM has stated that affected employees will receive compensation of N+3 (N being the number of years of service).

IBM's China operations include several subsidiaries, and the employees affected by these access restrictions are part of IBM's China division, specifically within the CDL and CSL units. The restrictions have affected over 1,000 R&D and testing staff across various locations in China, including Beijing, Shanghai, and Dalian, while employees in after-sales and consulting roles retain normal access.

IBM's second-quarter financial results show total revenue of $15.8 billion, marking a 2% year-on-year increase (4% in constant currency terms). The report also noted a 16% decline in revenue for IBM's China operations, while the broader Asia-Pacific market, including China, saw a 6.5% revenue increase.

This restructuring comes unexpectedly, especially given that just days before the announcement, on August 22, Xudong Chen, Chairman and General Manager of IBM Greater China, expressed optimism about the growth prospects for IBM's AI business in China. In March, Chen outlined IBM's strategy for 2024 in the Greater China region, highlighting plans to maximize potential with key clients, enter new markets, and expand distribution channels significantly.