IBM's struggling semiconductor business will lay off 600 workers and require employees to take a week of unpaid vacation, according to a company spokesman.
Of the 600 jobs, about 500 would be cut from the company's Essex Junction, Vermont, facility, an IBM spokesman, Bill O'Leary, said.
Most of the affected employees worked in manufacturing support services for IBM's semiconductor business, he said.
Workers would have 60 days to apply for other jobs within IBM, O'Leary said.
If those employees were unable to find another position after that time, they would be cut loose with a severance package of two weeks' pay for every year of service, up to 26 weeks, he said.
Revenue from IBM's Technology Group, which makes semi-conductors for its own servers as well as for outside companies, dropped 34 per cent in the second quarter, IBM said when reporting its second-quarter earnings in July.
Monday's job cuts were intended to reduce IBM's long-term costs and improve profitability, O'Leary said.
The company would address short-term costs with the unpaid leave strategy, O'Leary said.
A cross-section of IBM employees, including managers and executives, would be required to take the unpaid week, he said.
The Vermont facility is IBM's largest chip-making plant, but it was a little behind the times, O'Leary said.
IBM recently opened a state-of-the-art fabrication plant in East Fishkill, New York, that produces 300mm silicon wafers using IBM's 0.13-micron process technology.
The Essex Junction plant also makes silicon wafers at 0.13 microns, but on 200mm wafers, O'Leary said. Semi-conductor manufacturers can cut more chips from larger wafers, improving the efficiency of the manufacturing process.
Newer process technologies, enabling the creation of chips with features as small as 90 nanometers in size, would also be rolled out in East Fishkill, O'Leary said.
The Essex Junction plant made a wide variety of semi-conductors that were used for more mature technologies, which made it even more important that IBM reduced costs at that location to keep up with semi-conductor manufacturing companies in Taiwan with lower costs, O'Leary said.