IBM - International Business Machines

[fareastwarriors]

Druckenmiller: IBM 'poster child' of bad corporate growth

 

 

http://www.cnbc.com/id/101845544?trknav=homestack:topnews:10

[VAL9000]

Druckenmiller: IBM 'poster child' of bad corporate growth

 

 

http://www.cnbc.com/id/101845544?trknav=homestack:topnews:10

 

When he says that IBM hasn't made any investment, does he mean the $7 billion they have invested in cloud capabilities to date?  Or is he referring to something else?

 

[LowIQinvestor]

I don't pay much attention to Druckenmiller but does he always seem annoyed or miserable during interviews? (Serious question)

 

Back to IBM: Many of the things he thinks are negative about IBM, I think are positives. I hope they continue to buy back shares and financially engineer.  Does anyone think John Malone is a financial engineer!?

 

I just don't see how you can make much money shorting this around 10 times earnings.

 

 

[peter1234]

I don't pay much attention to Druckenmiller but does he always seem annoyed or miserable during interviews? (Serious question)

 

Back to IBM: Many of the things he thinks are negative about IBM, I think are positives. I hope they continue to buy back shares and financially engineer.  Does anyone think John Malone is a financial engineer!?

 

I just don't see how you can make much money shorting this around 10 times earnings.

 

I have not seen interviews of him in the past. Seems like a more recent thing.

 

Stock / market opinions seem to be mixed with other opinions and causes. Not sure if they are the reasons he appears in public now.

;)

[fareastwarriors]

http://www.ft.com/intl/cms/s/3/3a2190e4-0e63-11e4-b1c4-00144feabdc0.html#axzz383LVVAki

 

 

IBM: buying spree

 

 

Big Blue’s enthusiasm for share buybacks has seen earnings rise faster than revenues

 

 

 

They call IBM Big Blue. But actually, fewer than 1bn bits of it float around the stock market these days. IBM’s share count dropped to 998m in the second quarter. Four and a half years ago, there were just shy of 1.25bn shares. Since then IBM has repurchased $68bn of its stock. And it is not the only one; US share buybacks reached a record in the first quarter of the year.

 

IBM has been particularly enthusiastic – that $68bn is $18bn more than the buybacks which, in 2010, it promised during the next half-decade. “Roadmap 2015” may be better known for another IBM promise, to increase earnings per share to at least $20 by that year (it reached $17 in 2013). But IBM also promised $100bn – or roughly what the Apollo space programme cost – of free cash flow during the five years 2010-2015. Looking back, between 2000 and 2013, IBM produced $165bn in free cash, and spent $140bn on share buybacks and dividends.

 

One consequence is that the company’s earnings have been rising faster than its revenues. Since the 2010 Roadmap, IBM revenues have hugged $100bn each year. This year promises more of the same – in the first six months, revenues fell 3 per cent. Yet earnings per share rose 14 per cent in the same period. Share buybacks of $12bn so far in 2014 were partly responsible, but IBM has also been cutting its operating costs.

 

 

 

That is all very nice, but companies such as IBM cannot keep buying back shares and cutting costs forever. Overall in the US economy, the share of output taken by labour remains at a generational low. However, that means it may have bottomed, so bargaining power may return. Shareholders might prefer earnings growth to come from higher revenues (which could in turn require that cash is ploughed into the company, not paid out) rather than lower costs and fewer shares. But financial engineering, once begun, may be hard to let go of.

[tombgrt]

What a POS article.

[fareastwarriors]

What a POS article.

 

 

;D

[JAllen]

 

"Which brings us finally to IBM’s cloud strategy. Remember IBM’s future is supposedly based on mobile, cloud, and analytics — mobile being the Apple/IBM deal I wrote about last week. Just in the last week or so IBM CEO Ginni Rometty has started to back away from cloud as the basis of IBM’s future and for good reason: it can’t work.Cloud is an industry where prices are dropping by half every year and will continue to do so for the conceivable future. It’s an industry where the incumbents not only have very deep pockets, the biggest of them aren’t even reliant on cloud for their survival. Amazon is the cloud leader, for example, yet if their cloud business went under you’d hardly see it as a blip in the company financials — it’s such a small part of Amazon’s business. So too with Google.

But what about IBM? Unlike these other companies, IBM has to actually make money on their cloud investments because they’ve told the world that will be the basis of much of their income moving forward. Except it won’t, because cloud computing has become a commodity and IBM has never been successful in a commodity business.

"

http://www.cringely.com/2014/07/25/fed-suckered-ibm-failing-cloud-strategy/

[KCLarkin]

Cloud is an industry...

 

Anyone stupid enough to think "Cloud" is some sort of homogeneous "Industry" is probably not worth reading.

 

We can all agree that IBM has no interest in commodity IaaS. But "Public IaaS" is only a small part of Cloud.

[Palantir]

What edge does IBM have in private IaaS apart from their existing installed base?

[KCLarkin]

What edge does IBM have in private IaaS apart from their existing installed base?

 

Well first of all, I think IaaS will only be a small part of the "Cloud" profit pool. But IBM has several advantages in the private/hybrid space:

- Higher reliability: AWS has truly awful reliability (speaking from experience). This is fine for many use cases but not for many industries (e.g. banking).

- Vertical Focus (can tailor offerings for gov't, financials, etc)

- Services

- Software

- PaaS

- Enterprise sales force

- Installed base

- Security

 

I really don't see AWS and IBM as competitors. I suspect IBM will make a lot of money helping enterprises integrate AWS.

[Palantir]

 

I really don't see AWS and IBM as competitors. I suspect IBM will make a lot of money helping enterprises integrate AWS.

 

Really?

[KCLarkin]

 

I really don't see AWS and IBM as competitors. I suspect IBM will make a lot of money helping enterprises integrate AWS.

 

Really?

 

http://aws.amazon.com/ibm/

[Palantir]

That's the opposite scenario. You're running IBM apps on top of AWS infrastructure, which directly competes with IBM's own cloud product. This is good for AWS as they are commoditizing the complement.

 

 

[KCLarkin]

That's the opposite scenario. You're running IBM apps on top of AWS infrastructure, which directly competes with IBM's own cloud product. This is good for AWS as they are commoditizing the complement.

 

Let's just say you have much more certainty about a highly dynamic ecosystem than I do. I understand AWS well. I run a startup that runs exclusively on AWS. Still, my crystal ball is cloudy.

[Palantir]

I run a startup that runs exclusively on AWS.

 

Well, this is my takeaway.

[VAL9000]

That's the opposite scenario. You're running IBM apps on top of AWS infrastructure, which directly competes with IBM's own cloud product. This is good for AWS as they are commoditizing the complement.

 

What you're overlooking is that IBM is converting all of its relevant enterprise applications to run on SoftLayer.  IBM On Premise software running on AWS is not very important - of course it would.  What's important is that IBM will sell these applications as cloud deployments in the future and the customer won't really care if it runs on AWS or SoftLayer.  Actually they won't have a choice.  At some point IBM will stop selling these applications in any format except the cloud wherein they own the infrastructure, for obvious huge advantages. 

 

Cloud has reached the stage in the enterprise adoption cycle where buyers ask: "What's your SLA? Can you show me your SSAE 16 Type 2 certificate? Where, physically, is the data?" Answer those questions right and they will buy.  Softlayer gives IBM all the right answers.  The same answers AWS would give them, except they can say it's IBM through-and-through which is exactly what a large % of enterprise buyers want to hear.

 

IaaS is boring because it is going to be a race to the bottom.  The parameters around what is an acceptable performance standard have been set in the industry.  Now it's all just price price price.

 

Applications, on the other hand, are where high margin revenues come from.  The cost of operating at the IBM cloud scale vs. the AWS cloud scale doesn't really factor into those deployments.  Maybe they'll save $10mm a year on $1bn a year in business.  Being able to say it's IBM through-and-through, or even being able to pitch IaaS business is well worth the $10mm..  consider it a marketing expense.

 

IBM has a shit-ton of applications that are proven, trusted, and readily convertible to cloud solutions.  Customers will buy, and they will be even more committed than with traditional on premise software.  For those interested, here are a few of the solutions tying complex customer business processes to IBM software, solutions, and cloud infrastructure:

http://www.ibm.com/cloud-computing/us/en/marketplace.html#biz

 

Just think about the implications of that last bit.

 

[Palantir]

 

 

What you're overlooking is that IBM is converting all of its relevant enterprise applications to run on SoftLayer.  IBM On Premise software running on AWS is not very important - of course it would.  What's important is that IBM will sell these applications as cloud deployments in the future and the customer won't really care if it runs on AWS or SoftLayer.  Actually they won't have a choice.  At some point IBM will stop selling these applications in any format except the cloud wherein they own the infrastructure, for obvious huge advantages. 

 

Recall that I am not the one who brought up the idea of IBM applications running on AWS platforms. What you are saying is a rehash of what I said earlier - IBM can take advantage of a large installed base of clients who use their applications. However, that only matters for clients who are using that particular part of the IBM stack, if you're not living in an IBM world, it's far less relevant. If you're living in a .Net world, Azure is a natural conclusion.

 

 

 

 

Applications, on the other hand, are where high margin revenues come from.  The cost of operating at the IBM cloud scale vs. the AWS cloud scale doesn't really factor into those deployments.  Maybe they'll save $10mm a year on $1bn a year in business.  Being able to say it's IBM through-and-through, or even being able to pitch IaaS business is well worth the $10mm..  consider it a marketing expense.

 

IBM has a shit-ton of applications that are proven, trusted, and readily convertible to cloud solutions.  Customers will buy, and they will be even more committed than with traditional on premise software.  For those interested, here are a few of the solutions tying complex customer business processes to IBM software, solutions, and cloud infrastructure:

http://www.ibm.com/cloud-computing/us/en/marketplace.html#biz

 

Just think about the implications of that last bit.

 

See above - depending on IBM's installed base of clients who use their applications as a way of pushing their cloud platform. It is only really relevant to the guys who have a lot invested in IBM software, and secondly, it only works when IBM is able to convince them to be on their platform. Given the speed at which AMZN and potentially Azure are moving, they will need to start convincing their customers really quickly.

 

Applications are certainly a weak point for Azure, but that can be fixed later. Once you control the platform, you can start introducing apps to your customers.

[KCLarkin]

 

Recall that I am not the one who brought up the idea of IBM applications running on AWS platforms.

 

 

I don't want to waste anyone's time speculating on an uncertain future. But I do want to clarify this point. I said I "suspect" that IBM will eventually make a lot of money integrating AWS into their customers IT systems. "Suspect" means that this is pure speculation without any proof. I didn't mean to indicate that IBM will make a lot of money selling apps on top of AWS, rather AWS will play a role (whether IBM likes it or not) in most enterprise customers IT budgets. AWS adds complexity, so many customers will need someone to help with this integration. A big part of IBM's business is providing integration services...

 

My point is: IBM can lose (already lost actually) the Public IaaS battle and still remain relevant. In IT, IBM has probably lost more battles than it has won yet it has grown EPS and DPS by 4x over the last decade.

 

[Palantir]

^What advantage does IBM have over other integrators such as Accenture or the Indian IT firms? (Aside from installed base of IBM application users?)

[KCLarkin]

What advantage does IBM have over other integrators such as Accenture or the Indian IT firms? (Aside from installed base of IBM application users?)

 

That's a bit like asking what advantage MSFT has aside from its installed base. Or, more accurately, what advantage an accounting firm has other than its client base. If we ignore your most important advantage...what else you got?

 

The whole thesis is that IT relationships are incredibly sticky.

[Palantir]

Thanks, that answers my question, and I can definitely see why they are allocating so much to reducing share count.

[VAL9000]

 

 

What you're overlooking is that IBM is converting all of its relevant enterprise applications to run on SoftLayer.  IBM On Premise software running on AWS is not very important - of course it would.  What's important is that IBM will sell these applications as cloud deployments in the future and the customer won't really care if it runs on AWS or SoftLayer.  Actually they won't have a choice.  At some point IBM will stop selling these applications in any format except the cloud wherein they own the infrastructure, for obvious huge advantages. 

 

Recall that I am not the one who brought up the idea of IBM applications running on AWS platforms. What you are saying is a rehash of what I said earlier - IBM can take advantage of a large installed base of clients who use their applications. However, that only matters for clients who are using that particular part of the IBM stack, if you're not living in an IBM world, it's far less relevant. If you're living in a .Net world, Azure is a natural conclusion.

 

 

 

 

Applications, on the other hand, are where high margin revenues come from.  The cost of operating at the IBM cloud scale vs. the AWS cloud scale doesn't really factor into those deployments.  Maybe they'll save $10mm a year on $1bn a year in business.  Being able to say it's IBM through-and-through, or even being able to pitch IaaS business is well worth the $10mm..  consider it a marketing expense.

 

IBM has a shit-ton of applications that are proven, trusted, and readily convertible to cloud solutions.  Customers will buy, and they will be even more committed than with traditional on premise software.  For those interested, here are a few of the solutions tying complex customer business processes to IBM software, solutions, and cloud infrastructure:

http://www.ibm.com/cloud-computing/us/en/marketplace.html#biz

 

Just think about the implications of that last bit.

 

See above - depending on IBM's installed base of clients who use their applications as a way of pushing their cloud platform. It is only really relevant to the guys who have a lot invested in IBM software, and secondly, it only works when IBM is able to convince them to be on their platform. Given the speed at which AMZN and potentially Azure are moving, they will need to start convincing their customers really quickly.

 

Applications are certainly a weak point for Azure, but that can be fixed later. Once you control the platform, you can start introducing apps to your customers.

 

I think you should spend more time understanding the differences between various cloud software and service offerings.  Also understanding the enterprise software market and how companies decide to buy or build, from whom, and when, and why.

 

KCLarkin pointed out earlier that it's not as simple as you make it seem.  I'll go further to say that as someone who is intimately familiar with enterprise software, I can assure you that you're oversimplifying a very large and very complex industry, which is leading you to a false conclusion about its future.

 

[KCLarkin]

Cloud revenue jumps, led by Microsoft and IBM

http://www.theglobeandmail.com/technology/tech-news/cloud-revenue-jumps-led-by-microsoft-and-ibm/article19906848/

[fareastwarriors]

 

IBM: cashing in its chips?

 

 

What do you call a deal in which the seller is paying the buyer?

 

http://www.ft.com/intl/cms/s/3/c3a7c2de-1c23-11e4-9666-00144feabdc0.html#axzz39RglzbQF

 

 

 

Selling an asset normally involves getting money from the buyer. But what do you call a transaction in which the seller is paying the buyer instead? A giveaway. A disposal. Or – if the seller is willing to pay the buyer $1bn to take the asset off its hands – is it a Hail Mary pass?

 

This is the situation in which IBM finds itself, after reports that GlobalFoundries has walked away from talks about taking over its chipmaking business, even with the cash thrown in. IBM has put its chip manufacturers up for sale, as it seeks to shift towards higher margin businesses. The company has manufacturing facilities in Vermont and New York that sell chips internally to IBM (used for power processors and mainframe processors) and also externally. The business does not contribute much financially: external sales were $1.7bn last year, which was just 2 per cent of revenues. Bernstein estimates that the division made operating losses of $500m, although this was partially offset by IP licensing revenues of roughly $400m.

 

So is it a great blow if IBM fails to give away its foundries? The one in New York, built 12 years ago, will soon be due for big, expensive upgrades that IBM does not want to pay for. The company is investing its capital in more productive directions, such as research for next-generation chip technology. Yes, keeping the manufacturing facilities saves IBM money when buying its own chips. But Bernstein estimates that these internal sales are $600m a year; if IBM were to buy these from another company at 20 per cent margin, it would cost $120m more. That is a rounding error for a company that generated $20bn in operating income in the past 12 months.

 

IBM has a habit of timing its exits well, and disposing of chipmaking makes sense in the long term. But usually selling a business is not quite so costly.