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As TheStreet.com reports:
The firm lowered its price target on IBM to $160 from $185 and slashed its full year 2014 revenue expectations to $93.6 billion, from $95 billion. Bank of America’s full year 2015 revenue expectations are now $88.7 billion versus its previous $92.8 billion forecast. Full year 2016 revenue is expected to be $88.7 billion, down from $93 billion.
Bank of America/Merrill Lynch cut its full year 2015 earnings estimate to $16.19 per share, from $17.37, and its full year 2016 earnings to $17.15 per share from $18.65. However, the firm raised its full year 2014 earnings estimates to $16.01 per share, from $15.94.
Thus, 2015 is a critical year for IBM. The company has lost a significant chunk of power in the Dow, and is the second-most shorted name of the five technology giants I discussed today. While the dividend yield is the highest in the space and you might get 3.00% over the next 12 months, that will be a small consolation prize if the business does not rebound. If IBM does not get its act together this year, I would look for some activists to come in and try to shake things up.
The project kicked off in 2007 with a budget of just over $6m. It's now expected to cost up to $1.25bn to complete, a failure that has led the State's government to run a Commission of Inquiry into the affair.
That inquiry is due to report by the end of July, and looks set to spark a rolling lawyer-fest on a scale that Cecil B de Mille might find worthy of attention.
Former Queensland Premier Anna Bligh told the inquiry the former government chose to negotiate a settlement with IBM rather than risk litigation. However, it looks like the vendors surrounding the project will be more than happy to unleash their lawyers as soon as the commission delivers its report.
The Register in the United Kingdom published a story on January 9th describing the new structure of the company, which will be divided into different departments including Cloud, Watson and Analytics. Watson refers to IBM’s artificial intelligence system.
IBM’s restructuring will put software at the forefront of IBM while hardware takes a back seat. Rometty is quoted in an internal memo, stating “IBM software has become an essential element in every part of our company. Indeed, it is so because our software portfolio is the foundation of the world’s core business systems and powers the expanding array of cloud-based solutions we are bringing to clients.”
Selected reader comments follow:
I can understand why the CIA wanted AWS over IBM. Check out the compliance certs that anyone gets when they use the service: http://amzn.to/1zbJTDe Many Data Centres can't offer this level of compliance.
AWS is not cheap. You can host for far cheaper on other services like digitalocean.com but you would chose AWS because of its maturity, sophistication, flexibility and compliance to best in class standards. And you pay for it. But I guess IBM would be more expensive than AWS.
Also I saw a survey of 300 SaaS companies. Whilst a physical server in a DC is still the most popular option (probably because it's actually cheaper than AWS), AWS is a close 2nd. Startups are embracing it. It will become the standard.
I think Amazon is an awful stock and would not invest in it. But I like technology. I like to code. AWS is great. And the Kindle too.
I think IBM is a better stock but they seem a long way behind in the cloud where Amazon has done a great job and disrupted an entire industry.
By the time 2015 is over, IBM's annual revenue would have fallen over $17 billion in just four years' time. That's an epic loss. Yet still, some IBM investors remain convinced the company is recovering, and naturally point to its EPS and P/E ratio as a reason why. The reason is because the company has made an equal effort to stop the bleeding in its stock, as it has to spark growth with acquisitions. Unfortunately, both strategies have been equally disastrous, with IBM having nothing to show but a business that's losing profits and cash, and increasing in debt very fast. ...
That said, with just $9.5 billion in cash and equivalents, and over $45 billion in debt, IBM must change the way it operates. During the last two years, the company's buybacks have not only pushed its EPS higher, but have also saved investors from much larger losses. While its stock price has only declined 19% over the last two years, its market capitalization has fallen nearly 29%. However, with IBM's profits dwindling fast, it won't be able to keep buying back stock at a rate that's appeasing to Wall Street, while also making big acquisitions for the future. It has to sacrifice one or the other, and at the very least, significantly cut buybacks.
Given the fundamental outlook for IBM, including the decline in revenue which most likely indicates a further decline in profits, I think it's far more likely that shares see accelerated losses in 2015, with IBM having to slow the rate at which it buys back stock. Unfortunately, investors won't be happy with this decision, if it happens, but for IBM to concentrate on its business and grow organically, it is a necessary evil.
Selected reader comments follow:
Knowing what I know, and it's limited, about cloud, social, big data, it's evident IBM is very far behind. Rev/profits may hold for now, but once customers figure out that they can get solutions for far less, they will leave IBM. IBM's staff was also hollowed out for years. The best talent is leaving.
IBM is on a downward arc and nothing but a new outsider CEO and epic restructuring and downsizing will turn it around this time...it's Kodak version 2 now.
It worked for Palmisano because there was still a high BMI in IBM's bod but not anymore; it's bone and muscle now. Add this to all its other issues and the time has finally come to pay the piper for all these exec shenanigans; desperately need an outsider like Gertsner to right the ship just like he did.
With the cumulative number of reduced workers over the years, I think there's now a good number of redundant layers of management (with no reports) that should be ripe for the next rounds of cost-cutting layoffs. However, it remains to be seen if IBM management will continue its layoff pattern of ridding itself of workers and not management.
Prediction #5 — Immigration reform will finally make it through Congress and the White House and tech workers will be screwed. Remember the tech worker shortage that really doesn’t exist in the USA? Well lobbyists remember it fondly and will ride the new Republican majority to legislation that will give tech employers even more chances to bring under-paid tech workers into the country to replace domestic tech workers who are supposed not to exist. The facts are indisputable but you can lead a politician to water though you apparently can’t make him or her vote. So despite the improving and ever-more-tech-centric economy, look for no tech salary increases (again) for 2015, just more H-1Bs. ...
Prediction #8 — IBM’s further decline. You knew this was coming, didn’t you? IBM is screwed and doesn’t even seem to realize it. There was an earlier version of this prediction that said IBM earnings would drop for the first 2-3 quarters of 2015 and then recover because of lower oil prices and the generally improving global economy. Well forget that. Even if the world does do better IBM will do worse because the low dollar IBM has relied on since the Sam Palmisano days has gone away so there’s nothing left to be made on that carry trade. IBM’s old businesses are dying faster than its new businesses can grow. The company’s only near-term hope is that the Fed keeps interest rates low, but that’s not saying much.
And speaking of saying much, my next column will be all about IBM, its new Reorg-from-Hell, and what this means to customer, employees, and investors alike.
Prediction #9 — Where IBM leads, IBM competitors are following. When I was in college one of my part-time jobs was at Rubbermaid, a fantastic company based in Wooster, Ohio, where I went to school. Rubbermaid was run like a watch by Stan Gault, class of 1948 — a guy who really knew how to make money. Stan eventually retired, came out of retirement to save Goodyear, then retired again and now gives away his money. But the Rubbermaid of today isn’t anything like the company I remember because it tried and failed to compete with Tyco Industries, a conglomerate run by Dennis Kozlowski. No matter how well Rubbermaid did, Tyco did better, so Wall Street rewarded Tyco and punished Rubbermaid, eventually driving the company into a merger that created a new company — Newell Rubbermaid — which is way more Newell than it is Rubber. The problem with this tale, of course, is that Tyco’s Dennis Kozlowski was a crook and is now doing time in federal prison. Tyco appeared to do better than Rubbermaid because Tyco lied.
Now I am not saying IBM has been lying, but I am saying that IBM has been setting an example of corporate behavior that makes little to no sense. Sales go down yet the stock price (until recently) went up! Like the Rubbermaid example, this has had some effect on IBM competitors, specifically Computer Sciences Corporation (CSC) and Hewlett Packard, both of which are having IBM-like troubles with their services businesses. And for CSC, which has no printers or PCs to sell, well services is about all there is. So look for IBM-inspired problems in these IT service operations for all of 2015.
Pros: Pays well, benefits, vacation, 401K.
Cons: Good pay but believe me you REALLY earn every dime. Highly competitive and large demands placed on every employee are extremely high. Therefore, you can't trust anyone you work with. Management isn't as well aware as they would have you think. Had seven managers in 10 years. Some of them didn't have a clue about proper management. More concerned about meeting work objectives than managing people and helping them achieve their goals, opportunities or promotions.
Pros: Smart colleagues, well-respected company that's a household name, work on challenging and important initiatives, most decisions based on facts and the merits of the argument.
Cons: Bureaucratic and complex. Company does not invest in its employees as much as it used to; pays the minimum to retain employees. You need to be good at setting boundaries because there are major work/life balance issues with expectations that you be connected 24x7. Lack of promotions unless you are politically connected. Feeling of social isolation due to over-reliance on technology and conference calls rather than face to face meetings.
Advice to Senior Management: The company focuses on baby boomers who are running the company and millennials who are cute with out-sized egos and ignores gen x employees who have tons of knowledge and experience who have been waiting in the wings for opportunities once boomers start to retire. Need to invest in employees or they will leave when economy improves.
Pros: Work from anywhere. Most of the people have good hearts, and want to do the right thing.
Cons: Culture, many motivational factors and all of them are negative. Executives have 100% accountability, and zero authority.
HR practices are archaic, hiring freezes kill innovation. Headcount management vs. expense management? This is a concept from the 90s.
Too much dead weight, especially in the executive ranks. The most senior level management is focused on quarterly earnings at any cost, and makes very, very poor long term decisions.
Advice to Senior Management: See Cons
Pros: Decent but declining company brand to put on a resume for future job searches. Great opportunity to develop ping pong and foosball skills. Able to take long lunches and leave early for the day without anyone noticing. Company sponsored events are fun, including baseball games and trips to Minneapolis. Good stepping stone to finding a better job in the cities.
Cons: Finance is drastically underpaid compared to other companies. Intense boredom is common. Some days I go the entire day without doing any work at all. If you give the impression that you have improved your role and eliminated work, you are rewarded with more responsibility and work added to your role with no additional pay increase. New hires are trained by the person who had the role previously. If the previous worker is already gone, you are in trouble. They used to order pizza for quarter close but the expense was hurting IBM's earnings, so they cut that out. They sell the dream of being promoted to the New York location, but that rarely materializes.
Advice to Senior Management: Pay a reasonable salary and improve training process.
Pros: Everybody knows who IBM is. They have a good brand. They have a lot of smart people, especially in the engineering departments. It's easy to get appointments with clients and prospects. You have the option of working from home.
Cons: They do not pay well compared to other companies. It seems like good people are always getting laid off. The sales plan is way too complicated. There are too many managers. The internal systems are terrible.
Advice to Senior Management: The days of 70%+ margin on hardware are long gone.
Pros: Work from home; some good 1st level managers left.
Cons: Where to start — Benefits are bad, no raises, no bonus, nothing for the rank and file. IBM is bleeding talent fast, can't retain any decent employees. Have two types of employees: less than 5 years, and 25+; no one in the prime of their career. Leaving for a better offer after two tours, and 23.5 years total. Management above first level is clueless, and upper management only cares about their bonus, options, and golden parachutes.
Almost no promotions; raises non existent.
Advice to Senior Management: Invest in the workers; you can't deliver on customer accounts, never mind internal. If not, you will lose customers as fast as employees. IBM is the leader in off-shoring, they are great at that.
Pros: Nothing positive about working for IBM.
Cons: Benefits are horrible, there is no work-life balance, leadership does not support training, and leadership pits employees against each other.
Advice to Senior Management: The leadership in IBM's Global Business Services (GBS) stinks. IBM puts the wrong people in the wrong position and it's all about who you know instead of what you know. GBS is an albatross around the neck of IBM and eventually, IBM will exit from GBS. Clients' payrolls managed by GBS are horribly implemented and the employees of the clients suffer because IBM lacks the knowledge and capability to implement clients' payrolls successfully. Lawsuit after lawsuit has been filed against IBM.
Pros: Flexibility to work from any location. Access to really intelligent thinkers globally which enables unique learning during this new economy.
Cons: We work very hard but there are no incentives. There is no assurance of job continuity, or growth and it hangs over your head like an axe. Very hard for morale. No extra money but always need to move faster, do more, keep at it .... nothing removed just more...more. I have much to give but I am not the right age any more so no opportunity for me 'cause I am not under 40.
Advice to Senior Management: CEO strategy is spot on, however the multitudes of VP's and Sr VP's are getting in the way of success. They each have their take on how this will be executed and it hampers speed of execution which is critical. Cut the layers now and also listen to the seasoned staff that are closer to the work — they know where the traps and opportunities are.
Advice to Senior Management:IBM will be here long term. Don't continually chase the short term dollar and do more long term planning and investment.
IEEE-USA said the legislation, introduced by a bipartisan group of lawmakers on Tuesday, will "help destroy" the U.S. tech workforce with guest workers.
Other critics, including Ron Hira, a professor of public policy at Howard University and a leading researcher on the issue, said the bill gives the tech industry "a huge increase in the supply of lower-cost foreign guest workers so they can undercut and replace American workers."
Hira said this bill "will result in an exponential rise of American jobs being shipped overseas." ...
Daniel Costa, director of immigration law and policy research at the Economic Policy Institute (EPI), said the bill doesn't include reforms such as higher prevailing wages and requirements to recruit U.S. workers. Nor does the bill limit the use of the H-1B visa by offshore outsourcing firms, he said.
"This bill is basically a wish list for the tech industry," said Costa. ...
The IEEE-USA has favored green card immigration over an expansion of the H-1B program.
"There are simply no arguments for H-1B increases that aren't better made for green cards," said Russ Harrison, IEEE-USA government relations director, in a statement. "The primary, practical function of the H-1B program is to outsource American high-tech jobs. Do the bill's supporters really think that's the direction American immigration policy should go?" ...
An H-1B visa is good for six years, the IEEE estimates (assuming all the visas are used) that it represents at least an additional 1.8 million employees competing for jobs in a U.S. STEM workforce of about 5 million.
I have seen some very promising young IBMers quit after only a few years. These were usually the best and brightest of the recruits. Those from name schools with great skills and potential. I asked them afterwards why they quit. They all had some reasons in common. They hated the annual PBC farce, hated the constant RA fears, got a 1% raise every three years whether they needed it or not (sarcasm of course). but the most devastating comment came from all of them. They ALL said the same thing "IBM looks OK on my resume but its not a place to build a career". That is deadly to the company.
So is it possible that the difference is that in other places (schools, Verizon, etc) the employees expect and desire to spend a career there and thus join the union to better their lives and the company too but that in IBM we all know that we will eventually be fired? So that we have been so beaten down that we just don't care. We don't expect to spend a career here so its just a way station along our work life.
Despite all the rah rah stuff coming from management these days IBMers are not really committed to the success of the company since none of us expects to be here more than 3 months or however long it is to the next mass firing. Perhaps that lack of long term expectation is why so few join the union. -Lost in Band 10-
The project is supposedly so complex that it takes one year for a guy to understand the code and contribute meaningfully. I don't know which customer in this world will have the guts to buy a product whose development core team does not exist. The customer must be a brave heart like RAMBO or an idiot. -Rational-IR-Rational-
My second day of my new job they asked "what certifications do you have to renew each year and how much?" and picked up the renewal fee...clearly showing they value the effort. The new company also said they would attempt to provide some training to help with the CE requirement. -not Blue anymore-
Twelve people have joined the Alliance since the beginning of Dec? What are you waiting for? The writing IS actually on the wall for you and today's note proves it! -Long Time IBMer-
To -ANA-: Don't generalize your experience with a bad first-line manager to all FLMs — some of us have had the good fortune to work for good FLMs over the years. FLMs, even the good ones, have very limited ability to act independently of the directives they get from above, but the good ones might at least treat you with dignity if your number comes up. To everyone else: If you're not joining the Alliance because you don't think it will benefit you, at least consider joining as an associate member (as I did) to support their efforts. -Survivor-
They also feel since they have made it in America (they are effectively a brand talk product on their own and not a commodity even though one has to wonder what they actually DO or TALK about) and got theirs then everyone else has to find theirs, if they still can indeed succeed with the "great redistribution of wealth" and greed that has become USA capitalism. And they all consider unions or worker organizing activity the evil since they don't want a level or moderate playing field, not a left one, just their totally right one. To keep them where they are. -LevelPlayingField-
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