IBM is to close its hard disk drive production plant in the town of Székesfehérvár (60km west of Budapest) resulting in the loss of 3,700 jobs.
IBM Storage Products Kft (IBM Storage), the local subsidiary of the Chicago-based International Business Machines Corp (IBM), announced it was compelled to lay off its 2,100 full-time and 1,600 part-time employees (most of whom are Slovakian) and close down the unit due to “a weak global demand for hard disk drives” caused by the economic slump in the information technology market.
“Manufacturing of hard disk drives at the plant will cease at the end of November this year while the plant is to be vacated by the end of the first half of next year,” said Dieter Münk, Director of Manufacturing for Europe, the Middle East and Africa for IBM's Storage Systems Division.
Münk said the decision had been a difficult one and added that IBM's plan to close the Székesfehérvár plant would not affect its successfully expanding businesses in other parts of Hungary.
“This does not concern the newly-founded IBM Global Services Kft, the IBM Service Company Kft and IBM Magyarorszag Kft,” he said.
And in a separate announcement, IBM said the closure would not affect the company's agreement, signed this summer, to sell most of its hard disk drive assets to Japanese company Hitachi Ltd (for about $2.05 billion) by the end of the year.
Experts at the UK-based PC online news service The Inquirer (Breakthrough Publishing Ltd) said that IBM currently employs 3,000 less workers than the 18,000 it employed earlier this year at its hard drive subsidiaries worldwide.
These include units in Germany, Hungary, Mexico, Japan, Thailand and Singapore.
The news service also cited unnamed sources as claiming the real reason for the Hungary pull-out was because of poor quality manufacturing and major quality control failures.
However Government spokesman Zoltán J Gál said that, in a letter to Prime Minister Péter Medgyessy, IBM had given assurances that the reason the Székesférvár plant was closing had nothing to do with the quality of the workforce or investment conditions in Hungary.
“The Managing Director of IBM Storage [Norbert Wolpert] informed the Prime Minister that IBM was closing down the Székesfehérvár plant strictly due to the strong decrease in demand for computer hard disk drives and nothing else,” said Gál.
He said that at the same time IBM had pledged to assist its employees in finding new workplaces.
“The Government will also do everything it can,” said Gál, adding that the relevant ministries had been commissioned to work out an “akcióterv” (crisis management plan).
Gál added the Government and local multinational companies also in the information technology industry and the same geographical area [most likely Philips and Videoton] were currently in promising talks over the future of the soon-to-be-redundant workforce.
In a statement released by the Ministry of Economic Affairs and Transport (GKM), the Government said it would assist in finding alternative employment, in cooperation with other electronics and information technology companies in the Székesfehérvár region, to boost investment under the auspices of its Smart Hungary development program.
IBM Storage Products Kft was formed in the fall of 1995 and is Hungary's second largest exporter and the nation's sixth biggest employer, with export sales totaling Ft543.8 billion ($2.19 billion) last year (down 14% year-on-year), according to a list of Hungary's top 200 companies.
The company's pre-tax profit last year was Ft12 billion ($48.38 million).
The corporate tax paid by IBM to Székesfehérvár comprised nearly 4% of the municipality's budget, according to Tihamér Warvasovszky, the Socialist-Free Democrat Mayor of Székesfehérvár.
On hearing the news the bourse in New York saw IBM's shares drop $1.14 or nearly 1.5% before closing at $74.49.