IBM, the world's largest computer company, has said it is not planning large layoffs as information technology spending continues to be weak.

However, Reuters yesterday reported that an unnamed source close to IBM said the company was planning to lay off about 8,000 staff or 2.5 per cent of its 318,000 workforce. Most of the cuts are expected to take place in the second quarter and are targeted at specific divisions rather than the entire company.

IBM, which employs close to 5,000 people in Ireland, declined to comment on the reports.

Mr Steve Mills, head of IBM's 36,000-strong software group, said there were no plans for large layoffs. "We regularly cull our bottom-performing workers. We move tens of thousands of people into and out of the company every year."

In its most recent quarter, IBM missed Wall Street revenue and earnings estimates. It was forced to issue its first earnings warning in more than 10 years.

The company blamed lower levels of IT spending, which slowed further in March. Mr Sam Palmisano, chief executive, told employees in April that business conditions were unlikely to improve this year, and might rise only slightly in 2003.

Mr Palmisano told employees on April 24th that IBM would have to pare its work force because of the decline in corporations' demand for technology, according to an investor newsletter that published an edited transcript of the broadcast this week.

Gartner research director Mr Tom Bittman said he expected the first cuts to be in the Global Services division, which accounts for about half of IBM's employee base and more than 40 per cent of revenue.

Big Blue has weathered the downturn in IT spending better than many of its rivals thanks to Global Services, the world's largest IT services group. However, demand for IT services has fallen this year as companies postpone large IT projects because of a weak economy.

IT spending is directly tied to revenues and typically lags an economic recovery by about six months. The current economic recovery appears to be modest, adding caution to company spending. "Sales cycles have more than doubled and it takes companies a longer time to sign off on projects," Mr Mills said. But he was confident that most IT spending had been delayed, rather than cancelled.