What Happened to IBM?

Associate 3 in IB-M&A

How did one of the most storied names in all of Corporate America go down to such lows? Down 5% After hours (like many many earnings reports prior). I just dont understand how a business that used to be a leader in its space struggles to come out with good enterprise products - is the company even fixable now? What do you think needs to be done to turn the business around?

Comments (19)

Oct 17, 2019

It's still a great company with a ton of IP. Would need to look more into their financials and earnings but honestly, their market is unbelievably competitive. They used to be cutting edge, but now a few high quality data scientists with proper VC funding can create things faster with lean development strategies and lack of corporate yellow tape.

Will keep my eye on and see if I can get more specific.

"Out the garage is how you end up in charge
It's how you end up in penthouses, end up in cars, it's how you
Start off a curb servin', end up a boss"

Oct 17, 2019

China

What concert costs 45 cents? 50 Cent feat. Nickelback.

Oct 17, 2019

Have you ever seen that 60 Minutes Interview where the guy asks Jeff Bezos (Amazon) how he possibly thinks he can compete with Sears?

"The three most harmful addictions are heroin, carbohydrates, and a monthly salary." - Nassim Taleb

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Oct 17, 2019

My only credibility is my clientele in tech, I think @CuriousCharacter is better to opine on company specific matters, either him or @Secyh62

Anyway, ibm is trying to do what cisco, microsoft, and amazon have done successfully. Rather than living off of a cash cow with declining margins forever, using said cash to invest in the next frontier and win market share. It's all but settled that amazon and Microsoft are the cloud winners (google will still maintain a spot, but not dominance in the near term), cisco effectively transitioned from hardware to software although it's not been without bumps. Ibm on the other hand seems to not know what it wants to be. You had watson, that didn't do much, you have quantum, which is neat, but this isn't a science fair, and you have the red hat acquisition, which is too early to tell.

If you're a patient value type investor, there's something there, but you will have to wait and there might be some opportunity cost with that (despite a handsome dividend). I think ibm will surprise us, I just don't think it'll be quick

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Oct 17, 2019

Not one I've ever looked at or thought about, scores well in our factor model fwiw but I don't know much about them.

Most Helpful
Oct 18, 2019

tl;dr IBM will never recapture past glory.

Back in the day, IBM was THE tech monopoly - one did not compete with IBM, IBM was the environment in which one competed...

Those days are long gone.

Amazon, MSFT, Cisco, Google, etc. all have robust monopolies that gush cash (though Cisco's is fading).

What does Ginni & co. have? Mainframes? Hardware is only sexy if you own the entire stack from the bare metal to the UX a la Apple (Oracle tried to do this in the enterprise with their engineered systems and failed miserably).
Open source in general and Red Hat in particular are outside my circle of competence, but I'm not a huge fan of the model i.e. Elastic is running into big problems competing with Amazon in their space.

Red Hat is a bet on hybrid cloud, but only the very largest and/or most sensitive organizations can justify this approach at scale, so I think it will be too niche to really move the needle for IBM's purposes, though I could be wrong here.

I think IBM loses to Google in both artificial intelligence and quantum - the current generation of AI is a neural net needing billions of user generated transactions... IBM doesn't have a software platform anywhere near the requisite scale.

Maybe IBM catches a break from their R&D efforts, but they don't have a great history here - Larry Ellison pilfered the idea for an RDBMS from IBM's published works, and Oracle is now more valuable than IBM...

I could also see a value play, but I think it will be a long, hard slog.

Oct 17, 2019

The THINK mindset has been abandoned it seems and Watson Sr is rolling in his grave.

IBM was late to the cloud so it shall be wait and see on how the Red Hat acquisition goes for them.

Get your facts first, then you can distort them as you please.

Oct 17, 2019

Ginni Rometty needs to leave and this has been the case for about 5 years now.

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Oct 17, 2019

They have had pretty strong earnings on a per share basis, pays a dividend, but revenue has been falling over the years. They want to be an enterprise service company but there's a ton of varied competition servicing the industry. Hard to tell if one of their projects or IPs will pay off big later, or if they will gradually decline into nothing.

Oct 17, 2019

If you guys/gals have the time to read up on IBM back in the early days read (or listen) to a book called "Father Son and Co. - My Life at IBM and Beyond" Its about the story of Thomas Watson and Thomas Watson Jr. and the beginnings of IBM - Nothing really earth shattering, but definitely an interesting/entertaining story.

If you read that book, Today's IBM is not the same as the "cutting edge IBM" of the past. I agree with the Value play though - I don't follow them closely at all but I can see it being a sleeper stock that surprises in the next 10 years.

Oct 17, 2019

Bought it - thanks for the tip. Love the value and dividend. Boring - just like I like my life.

Oct 17, 2019

If you liked that, you'll probably like this book too:

https://www.amazon.com/Says-Elephants-Cant-Dance-A...
Its about when IBM was about to go down in the 90s, and Lou Gerstner saved its ass. Then Lou went to the Carlyle group from 2002-2016 (not in the book).

Its a pretty interesting walk through cutting divisions and fat in a company in order to save its fate.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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Oct 17, 2019

Only experience I have with IBM is from tech - they offer consulting services which tend to be aimed at firms / entities that need huge enterprise-level services.

From what I could see, I got the feel that they aim at landing these huge cash cow deals that will generate steady revenues for 10-15-20 years. They are notorious in tech for inflating projects, and delivering at times half-assed products which need years of support and fixing. Think Accenture but worse.

Oct 17, 2019

With redhat acquisition, they're well posed to capture the on-prem market. The Cloud has been all the buzz for about 10 years, so it's about time for people to start discovering all the drawbacks and want more computing at home. This is only the startups- all large enterprises are already hosting most to all of their computing for the stuff that matters at home.

Combine that with the Watson stuff, and it looks like they'll be competing with Microsoft as far as being in other large companies. Nobody is going to hand over their large, enterprise datasets to amazon to have amazon compute for them what their next strategy should be.

Azure is trying to capture more of the cloud type stuff but we'll see how well it does on-prem... Linux has such an advantage for anything other than AD/outlook type stuff.

Oct 17, 2019

Software engineer here.

In engineering circles, IBM isn't really even viewed as a tech company anymore. More of an IT consulting company that helps some enterprise companies with their legacy IBM systems. Watson isn't a real product, and I can't really think of anything else they've put out there. They've bought of a few of these open source providers, but open source is free, usually one of many similar flavors (e.g. there are a lot of Linux distros, including an AWS optimized version from Amazon), so I'm not sure how that helps IBM.

The upshot is no quality engineer in his right mind would join IBM, and without engineers, it's pretty hard to build new products. At this point, it's basically just a run out the clock situation for big blue.

On a related note, Oracle will be following suit in a few years. They have a lot of legacy stuff out there which generates a nice chunk of revenue, but no one is building greenfield systems with an Oracle database in 2019.

Oct 17, 2019
labanker:

The upshot is no quality engineer in his right mind would join IBM, and without engineers, it's pretty hard to build new products.

bruh its like the Indian dream - you must mean US engineer

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Oct 17, 2019

Good commentary in here. I'll post my thoughts and this is after I've spent 2 stints at IBM. One as developer and one as a consultant in global services.

1 - let's get this out of the way first, say it with me, "IBM is services company, they don't actually make anything". At least not any more they don't. They have been focused on global services for greater part of the last 15 years and I think that has been their overall downfall. Someone here mentioned IBM IP which is not wholly incorrect. But when that IP is for hardware products that you don't make or aren't needed in the marketplace (they own some old IP) then what good is it?

2 - IBM still uses legacy technology and frameworks. More specifically, IBM is a Java shop. Yes, yes, they'll tell you about their APIs to support other languages and they'll talk about python just to feel "edgy". But overall they are still Java and if you are Java you are having a hard time pivoting to algorithms and data science.

3 - When you're a developer at IBM (and if you're smart!) then you start to realize that all development teams at IBM are just massive loss leaders. You create the software at a loss, you make it up with global services. That has been the way IBM has been operating for a good while now. I started looking around and saw dinosaurs sitting at their desks, coding in Java and didn't like what I saw and moved on. Sure enough, 1 year later, the development rights to the product I was assigned to was sold to an Indian company. All my old friends were, essentially, removed from the IBM payroll and either replaced or moved under the umbrella of the Indian company. The Indian company produces the software, IBM pays them without have the HR overhead and then IBM makes the money on the global services side.

Overall I enjoyed my time at IBM but I'll most likely never work for them again. Ill leave it to the reader to decide if this is a sustainable model or not.

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Oct 18, 2019

I was hearing for a long time how IBM Watson was going to make doctors obsolete by using data to diagnose patients more precisely. I even heard how it was going to take down a lot of finance jobs.

Maybe we don't want IBM to do well regardless.

Oct 18, 2019
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