The decline and fall of IBM(cringely.com)
cringely.com
The decline and fall of IBM
http://www.cringely.com/2013/04/22/the-decline-fall-of-ibm
46 comments
Their share of the tech industry (which they used to utterly dominate at a scale we hadn't seen since the days of Standard Oil) has been on an inexorable downward path for almost three decades now.
Yes, they're still large and influential, and even "successful" in a limited sense. But in context I don't think you can look at their recent history as one of ascendance.
Yes, they're still large and influential, and even "successful" in a limited sense. But in context I don't think you can look at their recent history as one of ascendance.
IBM is the world's 24th most profitable company (2011). Only 23 companies in the entire world - not country but world - made more profit than IBM. Their revenue and profit grows year over year. Any definition of the term "downward path" that includes IBM is useless and provides no value.
http://money.cnn.com/magazines/fortune/global500/2012/perfor...
http://money.cnn.com/magazines/fortune/global500/2012/perfor...
Read Cringley's articles. IBM is great at marketing themselves and creating the appearance of value, but I doubt that they can do that forever.
People have been writing off IBM for decades.
If you go back to the early nighties IBM had two or years in a row where it's annual losses where bigger than some countries total income and their share price fell under the $20 mark.
That was around the time with the clone PC where taking off and everyone was predicted the end of IBM and big iron.
Move on 30 years and their share price is now back over $200.
If you go back to the early nighties IBM had two or years in a row where it's annual losses where bigger than some countries total income and their share price fell under the $20 mark.
That was around the time with the clone PC where taking off and everyone was predicted the end of IBM and big iron.
Move on 30 years and their share price is now back over $200.
Let's just focus on today and Cringley's articles. If you can find something wrong with his articles, where something isn't factual, please let me know. But what IBM has been doing: cutting R&D for short term gains rather than long term ones is going to have to consequences later down the line. Also, they are betting big on India at the expense of tech talent in the states...I'm not sure if this will pan out.
IBM has a hyper focus in optimizing their share price due to the talent they acquired from PwC; I would say, its more like PwC acquired IBM due to the cultural changes that followed (not that IBM was already dysfunctional, they were all too easy to convince of this). But really, how long can this last? Eventually they are expected to do great things to justify their valuation, and all the news suggests that they have no capabilities at all to do such; they just cut and cut!
IBM has a hyper focus in optimizing their share price due to the talent they acquired from PwC; I would say, its more like PwC acquired IBM due to the cultural changes that followed (not that IBM was already dysfunctional, they were all too easy to convince of this). But really, how long can this last? Eventually they are expected to do great things to justify their valuation, and all the news suggests that they have no capabilities at all to do such; they just cut and cut!
Guess how they got out of trouble in the early 90s:
January 17, 1993 The announcement by International Business Machines, whose corporate world headquarters are in Armonk, that this year it was cutting 25,000 more jobs worldwide and reducing its budget for research, development and engineering by $1 billion may signify that the company will have to initiate the first layoffs in its history. Up to now the company has used voluntary means like job buyouts and early retirement to eliminate jobs.
http://www.nytimes.com/1993/01/17/nyregion/ibm-weighs-possib...
Seem familiar?
January 17, 1993 The announcement by International Business Machines, whose corporate world headquarters are in Armonk, that this year it was cutting 25,000 more jobs worldwide and reducing its budget for research, development and engineering by $1 billion may signify that the company will have to initiate the first layoffs in its history. Up to now the company has used voluntary means like job buyouts and early retirement to eliminate jobs.
http://www.nytimes.com/1993/01/17/nyregion/ibm-weighs-possib...
Seem familiar?
I did my first IBM intern stint at Boca in 1995 (my second at Hawthorne in 2000). Many of the people laid off were hired back, then laid off again. It was definitely a very messed up time (incidentally, OS/2 was moved from Boca to Austin in early 1996 while I was there, many people moving but many laid off). They didn't really get out of trouble with the 1993 lay offs.
IBM culture back then was pretty toxic, and there was a lot of dead weight to lay off. It makes sense that many of those job could easily be moved to India, yeh for them! But now...even the high-end tech people who worked there are moving on to less toxic companies like Google. What's left? A bunch of consultants and a huge insourcing operation in India?
IBM culture back then was pretty toxic, and there was a lot of dead weight to lay off. It makes sense that many of those job could easily be moved to India, yeh for them! But now...even the high-end tech people who worked there are moving on to less toxic companies like Google. What's left? A bunch of consultants and a huge insourcing operation in India?
They used to dominate mainframe computing. They still do. Its just that the tech industry has become much much bigger than it used to be. PCs, internet, Mobile etc etc. You surely don't expect a single tech company to dominate the entire tech industry. It requires way too many competencies to make it work.
IBM was smart and got out of the PC business years ago. Selling PCs is a bad business.
They've moved from the original consumer facing businesses that they used to be deeply involved. Their involvement in that industry did nearly sink them in the early '90s, where they were losing money hand over fist. They cut their losses, sold off their PC divisions, and moved on.
However, in the high end markets where they can extract absolutely massive margins -- they used to dominate there historically, and they're still dominant, and raking in money hand over fist.
At this point, I'd say they got past their business problems from the early '90s, and seem to have reversed their decline. They're not the behemoth that they used to be, but they've got a very comfortable niche that is doing a good job of lining their pockets.
However, in the high end markets where they can extract absolutely massive margins -- they used to dominate there historically, and they're still dominant, and raking in money hand over fist.
At this point, I'd say they got past their business problems from the early '90s, and seem to have reversed their decline. They're not the behemoth that they used to be, but they've got a very comfortable niche that is doing a good job of lining their pockets.
the mainframe / high end server market generates only a small portion of the overall profit at IBM. And it has by far not the highest margin (that would be software and services). Just read the earnings report from last year.
Sorry, I should have been clearer -- I meant to write "high margin" when I wrote "high end". Services are certainly IBM's bread and butter.
Ever since IBM was taken over by PwC consulting, they've been eating their R&D seed for short term gains. So ya, they play the market well today, but I doubt they have much of a future. They also have played very little roles in recent innovations and inventions, even where they are supposedly strong (e.g. speech recognition and machine learning).
Many of the researchers I knew at Hawthorne left last year for places like Google and academia. I honestly know only a couple of IBMers now, whereas 10 years ago I knew many. This has something to do with them continually laying off US employees and replacing them with Indian employees.
But to be honest, outside of research, IBM had a very dysfunctional culture in the states since the early 90s. Most of the people they fired here were probably dead weight. Milking until there is nothing left is probably reasonable from the perspective of the shareholders.
Many of the researchers I knew at Hawthorne left last year for places like Google and academia. I honestly know only a couple of IBMers now, whereas 10 years ago I knew many. This has something to do with them continually laying off US employees and replacing them with Indian employees.
But to be honest, outside of research, IBM had a very dysfunctional culture in the states since the early 90s. Most of the people they fired here were probably dead weight. Milking until there is nothing left is probably reasonable from the perspective of the shareholders.
I used to be a developer with IBM and I was quite surprised that people actually paid for some of their products. The majority of the software sales were done as a part of 'packages' and 'solutions'. There was very little innovation happening there. The only way any new 'solutions' were developed in the business were through acquisitions.
Cringely's server appears to be down. Here's a Google cache version: http://webcache.googleusercontent.com/search?q=cache:trvMH5p...
Cloudflare is supposed to solve that problem but instead serve a page saying they can't. Not a positive endorsement of their service.
I've seen this on at least 6 occasions (for different sites) in the last few days. Is CloudFlare itself overloaded?
IBM sells itself to customers as an IT company, but its true core competency is selling itself to customers who think it's an IT company. There are some very smart people there, but for the most part they mistakenly thought they were going to work for an IT company, or they are in the part which is just marketing (IBM Research comes out with some truly amazing stuff, which is basically just marketing to convince companies to buy services from IBM).
Exactly. And there's nothing wrong with marketing, as long as the money comes along, which is all that "right" is: money. Some of these techies who write blogs are as smart as they are shortsighted.
website is down, the sweet irony... Now haven´t seen the opinion, I'm sure I have read the same already (over and over). IBM is not declining. To be magnanimous, I´d say it is only declining for narrow minded tech people who can see past their area of expertise. They are not investing, they are not innovating, they are cutting jobs in the US, bla bla bla. Well, they've been compounding at over 10% for the investor for the last 10 years, sure enough it's just a lucky strike or a mirage, right? yawn
Agreed. I can't reach the article as the site is down, so my comment may be out of context, but i do agree they're doing something right. I haven't been following their stock price, but i do take the odd glance at their movements.
I was in talks with an employee at a blue-chip here in the UK, about assisting them with their digital strategy. They clearly needed alot of help. Unfortunately a major player swooped in - fast forward 12 months - they've helped them turn things around and now the client is doing great.
Turns out the major player that swooped in was IBM. Who knew IBM was actively doing digital marketing. I mean they're an IT company, right? I.e. networks, servers, software.
I think the reality is, they're a consulting company for big business that will help their clients get anything done and it only has to be remotely technical.
So i think they'll be around for a long time to come.
I was in talks with an employee at a blue-chip here in the UK, about assisting them with their digital strategy. They clearly needed alot of help. Unfortunately a major player swooped in - fast forward 12 months - they've helped them turn things around and now the client is doing great.
Turns out the major player that swooped in was IBM. Who knew IBM was actively doing digital marketing. I mean they're an IT company, right? I.e. networks, servers, software.
I think the reality is, they're a consulting company for big business that will help their clients get anything done and it only has to be remotely technical.
So i think they'll be around for a long time to come.
Right! They are mostly a consulting company now (much like PwC consulting was...), and we should judge them as such. As I'm interested in tech R&D, that makes them completely uninteresting to me, and I don't think they should be valued higher than my current employer (Microsoft), but the market works in mysterious ways.
exactly.
"Why Warren Buffett Keeps Buying IBM"
http://www.forbes.com/sites/gurufocus/2013/01/08/why-warren-...
"Why Warren Buffett Keeps Buying IBM"
http://www.forbes.com/sites/gurufocus/2013/01/08/why-warren-...
I must be missing something, because when you have a debt/equity ratio of 173, isn't that a huge warning sign?
> Well, they've been compounding at over 10% for the investor for the last 10 years
Those sort of metrics are lagging indicators - they are about what was done in the past. There were plenty of similar companies with similar performance, right before they cratered. The Innovator's Dilemma covers this in detail. (Of course that is no guarantee IBM will crater.)
Those sort of metrics are lagging indicators - they are about what was done in the past. There were plenty of similar companies with similar performance, right before they cratered. The Innovator's Dilemma covers this in detail. (Of course that is no guarantee IBM will crater.)
And nothing of value was lost. It's a blog post with an intentionally hyperbolic headline to let you know he has a new book to sell.
IBM was my former employer. This has been going on for a long time in the U.S. All one needs to do is go to this site:
http://www.endicottalliance.org/
And read the forums.
http://www.endicottalliance.org/
And read the forums.
Since his sight seems to be down I'm left commenting on the headline [1](sigh) but my guess is that the arguments are the same as they are for the 'decline and fall of Microsoft' or any other company where their relative standing in a market that changed dramatically over their life, also changed the way in which folks perceived them.
Not to get all Grey Beard on y'all but back in the day IBM was the big behemoth and startups like Sun Microsystems or Microsoft even were the challengers. IBM was created when computers filled rooms, businesses ran on paper processes, and "uploading your database" consisted of tens or hundreds of young women typing on mechanical contraptions called "card punches." And they are still here and still making money.
And that last bit is what amazes me. Look at the 'big names' when they started, Rand, Sperry, Univac, Cray, Control Data, Digital Equipment Corporation, Etc. They are on track to become the first 100 year old "computer" company. (depending on when you think of it as becoming one) and they continue to dominate in patents issued.
What IBM has created is a very durable technology corporation, which is up there with Corning Glass and DOW Chemical. Somehow I suspect they will prove Cringley wrong.
[1] Ok so I read the cached copy and as I expected Cringely is extrapolating out from a few point changes into some apocalyptic demise. Previous columnists in Datamation predicted that once IBM's monopoly over peripherals was broken (1977?) they were doomed as well. Didn't happen of course.
Not to get all Grey Beard on y'all but back in the day IBM was the big behemoth and startups like Sun Microsystems or Microsoft even were the challengers. IBM was created when computers filled rooms, businesses ran on paper processes, and "uploading your database" consisted of tens or hundreds of young women typing on mechanical contraptions called "card punches." And they are still here and still making money.
And that last bit is what amazes me. Look at the 'big names' when they started, Rand, Sperry, Univac, Cray, Control Data, Digital Equipment Corporation, Etc. They are on track to become the first 100 year old "computer" company. (depending on when you think of it as becoming one) and they continue to dominate in patents issued.
What IBM has created is a very durable technology corporation, which is up there with Corning Glass and DOW Chemical. Somehow I suspect they will prove Cringley wrong.
[1] Ok so I read the cached copy and as I expected Cringely is extrapolating out from a few point changes into some apocalyptic demise. Previous columnists in Datamation predicted that once IBM's monopoly over peripherals was broken (1977?) they were doomed as well. Didn't happen of course.
Ah, I was waiting for Cringely's annual IBM-doom-and-gloom post.
I really don't know why he bothers anymore. IBM is just a consulting company now that makes money but has little to do with actual technological innovation. Its just not interesting anymore as they are irrelevant.
"Decline and fall" because IBM missed one earnings target after 4 years of positive earnings surprises (or more, I didn't look any farther back than 2009). Seems a bit preemptive.
The author's chief complaint seems to be that the management is incompetent, but IBM has been known for excellent financial management for the past 2 decades, and the CEOs have not changed recently.
The author's chief complaint seems to be that the management is incompetent, but IBM has been known for excellent financial management for the past 2 decades, and the CEOs have not changed recently.
[deleted]
A 101 processor machine with 4 cores each and 5.5ghz that is actually sold and profitable does not sound like something a fallen company can pull...
It sounds like a machine a business would use too, you know, like someone named International Business Machines might build and sell.
It sounds like a machine a business would use too, you know, like someone named International Business Machines might build and sell.
I think the first time I saw Cringely predict the death of IBM, it was in Accidental Empires, where he was confident that their mainframe business, and therefore their entire company, would collapse at the beginning of 2000 because of the Y2K bug.
Elephants can't dance.
This is actually old news. IBM has been in decline for a LONG time.
And Apple Is Doomed(tm)
Interned there a long time ago and built software for an application they bought. From the internal perspective there was a lot of big company politics and mail it in behavior. From an external perspective they buy companies in growing markets and milk them but don't really improve them. The complaint is that they are not pushing the boundaries not that they don't make money. The way I am evaluating them is whether I think that are bringing something new and valuable to the world. Celebrating them is like celebrating record profits from Exxon. Its kind of sad.
decline and fall of IBM? IBM transformed itself from a manufacturing company to one of the largest services company in the world. HP, Dell, everyone is getting out of the hardware business (low margin, etc.) and following IBM's lead (HP bought EDS and is trying to get rid of their hardware business. Dell bought Perot Systems 4 years ago and is in the process of going private so it can transform itself into a mini-IBM).
IBM's return on invested capital grew from 14.92 (2003) to 31.39 (2012).
HP from 9.98 (2006) ROIC to 14.97 (2012)
DELL from 43.33 (2003) to 11.32 (2012)
GOOG from 30.56 (2003) to 15.29 (2012) <=== going into the hardware business (MOTOROLA) is a bad idea for GOOG
MSFT from 17.66 (2003) to 22.66 (2012)
AAPL from 1.55 (2003) to 42.84 (2012)
If you noticed, IBM's ROIC is higher than other tech companies except Apple.
IBM's return on invested capital grew from 14.92 (2003) to 31.39 (2012).
HP from 9.98 (2006) ROIC to 14.97 (2012)
DELL from 43.33 (2003) to 11.32 (2012)
GOOG from 30.56 (2003) to 15.29 (2012) <=== going into the hardware business (MOTOROLA) is a bad idea for GOOG
MSFT from 17.66 (2003) to 22.66 (2012)
AAPL from 1.55 (2003) to 42.84 (2012)
If you noticed, IBM's ROIC is higher than other tech companies except Apple.
And now IBM is headed back into the financial toilet again. Consulting and Services are going to keep IBM around, and the name will last another 100+ years, but their stock price isn't going anywhere but down.
IBM is doing quite well. They are not falling at all. Yes they are not what they used to be , but they dont need to look like the new hotness to survive. IBM provides very high quality services for medium and big businesses. I'm not sure i get your point , just look at the numbers , they are quite good.
As somebody who makes a living writing code that integrates with an IBM product in the BI space, I absolutely love IBM. They gobble up companies to increase their portfolio and do little to improve them but end up crapping it up. It leaves a lot of market space for a company to come in and write software that will make working with their product(s) easy and intuitive.
http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&c...