Tag Archives: IBM

A Tale of Two Stocks

 

IBM

MSFT

Revenue (TTM) $101.62 billion $68.62 billion
Profit (TTM) $15.1 billion $21.79 billion
Net Margin 14.9% 31.8%
Price/Earnings 14.28 9.72
Forward P/E 11.67 8.84
Price/Sales 2.03 3.01
PE/Growth 1.33 0.9
Price/FCF 19.19 10.74
Dividend Yield 1.76% 2.61%
Debt/Equity 1.33 0.22
EPS 5 yr growth 18.59% 13.34%
Revenue 5 yr growth 1.85% 9.45%

Source: www.finviz.com

A Perfect Match

EU and IBM negotiators discussing the latest EU antitrust charges I have been asked for perspectives on the EU investigating IBM for mainframe malfeasance.  Other than saying how nice it is to see these two fine organizations keeping each other busy, I really don’t have much new to say beyond our last installment on this topic 18 months ago.  The glacial pace is probably fine for the mainframe market.  it is possible that the EU has settled on a strategy to pay for their various fiscal excesses by shaking down American technology companies.  I’m amused that IBM’s defense playbook is to blame Microsoft (and Opera has no doubt filed paperwork in Brussels supporting them).  Unfortunately, IBM’s response doesn’t bolster my hopes they will put their money where their mouth is and open source their mainframe software.  Opening this can of utopian whoopass would no doubt shower the mainframe world with innovation and good feelings.  I guess IBM’s view, despite all the rhetoric, is open source is still for other people’s businesses:

“IBM is fully entitled to enforce its intellectual property rights and protect the investments we have made in our technologies. Competition and intellectual property laws are complementary and designed to promote competition and innovation, and IBM fully supports these policies. But IBM will not allow the fruits of its innovation and investment to be pirated by its competition through baseless allegations.”

The Decline and Fall of Mozilla – Continued

IBM Staff MeetingAnother indicator of Mozilla’s continued slide (previous complaints here and here): IBM announces they are standardizing on Firefox.  The party is surely over.  The only news here is why didn’t this happen years ago.

My prescription remains Microzilla.

PHuW!™

I have a theory that companies peak soon after they make big, bold, public and very round revenue forecasts of fifty billion or more.  Basically, they’re so busy trying to grow to the sky they miss important changes in the market and/or hubris gets the better of them.  In some cases, the wheels come off the bus in spectacular fashion (see IBM, Compaq, Dell to a lesser extent) shortly after the big revenue goal gets hoisted (revenue goals being the BHAG substitute for the strategically bankrupt).

It is time to add Google to the official Platformonomics Hubris Watch (PHuW!™) based on a reported passage in the new Ken Auletta book about the company.  It is qualified slightly (“could”) and not a direct quote, but the official ruling is it is sufficient to get Google on the leaderboard:

In 2007, Eric Schmidt told me that one day Google could become a hundred-billion-dollar media company—more than twice the size of Time Warner, the Walt Disney Company, or News Corporation.

Here is the Official PHuW!™ Leaderboard:


Company


Target

Target Date

Date Added

Revenue
When Added

Current Revenue

Oracle $50 billion 5 years 6/2007 ~$18 billion ~$23 billion
Google $100 billion None 10/2009 ~$25 billion ~$25 billion

Commentary:

  • Google gets credit for having the biggest delta between current revenue and the aspiration.  They were smart enough not to put a date on it.  Or maybe they’re betting on hyperinflation.
  • Arguably, this should be backdated to 2007 to the time of Schmidt’s comment (but we wouldn’t want to get into trouble for backdating…).  It is interesting that a lot of Google’s big dreams have come back to earth since Schmidt made the comment.  Google is still zero for all the megalomaniacal initiatives they have thrown at the wall (radio, TV, enterprise, alternative energy, personal DNA sequencing, Second Life clones, etc.).
  • My general view remains that Google is going through the same arc that Microsoft went through except on a much more compressed timeframe.  They have less time to build additional businesses and competitors including sovereign nations have rallied to keep them from expanding their footprint as a prelude to going after their core franchise.  One of Microsoft’s big challenges was to pose a modest threat to the media, who buy ink by the barrel.  Google has this issue in spades as they pose an existential threat, and it is already coloring perceptions of the company.
  • Oracle update: they have vacuumed up pretty much everything not nailed down in enterprise software, but they’re still not even halfway to the goal.  Jacking maintenance fees will only take you so far (the customer backlash is finally building) and the Sun acquisition buys them less revenue with every passing day.  The Sun bid sure looks like the acquisition strategy in pursuit of the big number has taken on a life of its own.  There is an argument they’re getting a great price, and I still think they’ll flip the hardware business as soon as they can.  But there is still a lot that can go wrong and the deal doesn’t fit the acquisition template they have been using (it is hard to jack maintenance fees for Sun’s give-it-away-for-free-and-make-it-up-on-volume software “business”).

Have I missed anyone else who should be on the leaderboard?

Regulating the Land that Moore’s Law Forgot

In the days of yore, when mainframes ruled the Earth And so we come full circle: “IBM accused of abusing position in European mainframe market”.

Out of the limelight, IBM has spent significant time and money lobbying various governments to hobble competitors in the last fifteen years, all the while maintaining the biggest monopoly in technology with the mainframe.  Now the antitrust spotlight returns to them, amid accusations that IBM is doing exactly what got them into trouble decades ago (refusing to unbundle their software from their hardware).

IBM is very good at milking the mainframe installed base and defend it aggressively.  And for good reason: I have seen numbers that suggest the mainframe is still close to half of IBM’s profits when you include hardware, software and surrounding (people) services.  Forced forklift upgrades every couple of years are a favored strategy.

They’re also always on the lookout for ways to get new workloads onto the mainframe.  Nary a new buzzword appears without some cockamamie story about how the mainframe is the right place for the latest trend, though they never quite pan out. 

While supporting a legacy installed base is both necessary and even noble, the biggest problem is the mainframe has truly been the land that Moore’s Law forgot.  The computer industry’s inexorable engine of improvement has been suspended on the mainframe in the absence of competition to pressure IBM to pass the almost unavoidable cost savings onto customers (IBM: feel free to prove me wrong and start publishing industry standard benchmarks, particularly transaction benchmarks).

But as much as I welcome scrutiny of IBM’s business practices, the whole cycle of antitrust action is depressing, akin to the endless cycle of violence in the Middle East.  Microsoft naively once thought they could just go about their business (as IBM no doubt did as well decades before), but they faced competitors with better lobbying chops than software chops.  So Microsoft spent and spent to build up its own defensive lobbying capacity, yet could not resist using it offensively when the opportunity presented itself.  And so Google, after being jerked around on DoubleClick and their Yahoo search deal, is looking for payback and building a lobbying force that they too will need to keep busy

Perhaps just coincidently, there is new EU action against Microsoft over Internet Explorer.  I suspect Opera is not the only complainant here.  It is amusing to see the EU arguing that ongoing IE’s market share losses are smaller than anyone else reckons (suggestion for Dean and crew: let the EU provide your scorecard metrics for the next review period).

But pesky facts don’t matter so much in this case.  The EU is the most depressing aspect of the generally depressing antitrust topic.  While US antitrust policy is about protecting the consumer, the EU policy protects competitors, which of course makes them the first stop for any competitor looking for a leg up.

I suspect this latest action is the EU’s opening salvo for negotiations around Windows 7.  It has become a tradition for regulators to hold new versions of Windows hostage to their software design ambitions.

To return to our original topic, the obvious solution is IBM should just open source its mainframe software.  The bundling complaint goes away.  Mainframe software and competition probably improve.  IBM demonstrates their open source commitment extends to their own businesses and not just other people’s businesses.  And the EU regulators are happy and can focus all their attention on Windows 7 (as a counter, Microsoft should fess up and let the world know that Vista was actually designed by EU bureaucrats in Brussels).

IBM Threatens to Take Bat and Ball, Go Home

It isn’t often I have occasion to praise IBM, but they deserve kudos for at least threatening to pull out of formal standards bodies and openly questioning their once-beloved “standards process”:

International Business Machines Corp. will review its membership in the bodies that set common standards for the technology industry and may withdraw from some, potentially undermining the system that makes electronic equipment and software interoperable world-wide.

The Armonk, N.Y.-based computer maker is expected to announce the review Tuesday, according to company officials. IBM has become frustrated by what it considers opaque processes and poor decision-making at some of the hundreds of bodies that set technical standards for everything from data-storage systems to programming languages, those officials said.

It would be all the more noble a stance if IBM didn’t have decades of culpability in making standards bodies into cesspools of cynical politics and half-baked outputs (incomplete standards being a consultant’s best friend…).  They also lose points for making this move in a fit of pique after losing the Open XML battle.  I guess the appeal of standards dims when you don’t reliably get your way. 

The good news is perhaps IBM has figured out that “standards” are not the high order bit.  They certainly might make greater in-roads against Microsoft Office with an actual product strategy as opposed to just trying to make the Office file formats “illegal”.

Maybe more disconcerting is Microsoft’s embrace of IBM’s long-held comfort with the standards muddle:

A Microsoft spokesman said standards bodies are “invaluable” because they provide “an even and predictable playing field” to the industry. Their decisions reflect the views of a preponderance of members, “not the interests of any single party,” he said.

I will leave it to someone like Gartner to define the lifecycle of a company based on their evolving perspective on standards.  During ascendency, you have better things to do and your vitality and antipathy to standards scares people.  Then, you reach the comfortable, middle-aged embrace of standards, and start hiring employees for their ability to sleep sitting up during standards meetings.  To be followed by the post-partisan-whatever-it-is that IBM is now advocating.  Unless of course this is just a cynical maneuver to improve their position in the standards bodies they are threatening to leave, particularly by lowering membership requirements in order to expand the voting ranks with their allies for the next battle…

A Major Milestone

I nearly missed this industry first, following last quarter’s related announcement:

Linden Lab and IBM Achieve Major Virtual World Interoperability Milestone
Open Grid Protocol Enables Avatars to Teleport Between Second Life and OpenSim Virtual Worlds

NEW YORK & SAN FRANCISCO – 08 Jul 2008: Linden Lab®, creator of the virtual world Second Life®, and IBM (NYSE:IBM) have successfully demonstrated virtual world interoperability by teleporting avatars between the Second Life Preview Grid and an OpenSim virtual world server. The joint development project represents an industry first of a quantifiable milestone for virtual world interconnectivity.

Here is a screen shot from the demo:

tumbleweed

Evidently the tumbleweed avatar was successfully teleported from Second Life into an enterprise-class IBM virtual world running on a mainframe (which they want you to know are more relevant than ever, especially for really popular applications like interoperable, enterprise-class virtual worlds…).  Unfortunately, no observers were present in either virtual world to verify the claim.

Looking ahead, with enterprise suitability and interoperability now firmly in hand for the burgeoning enterprise virtual worlds market, IBM will no doubt turn its attention to the security problems raised by interoperability.  After all, you wouldn’t want more typical Second Life denizens teleporting into your enterprise-class virtual world.  Expect a hue and cry about illegal virtual immigration, foreign avatars soaking up system resources and taking virtual jobs away from local avatars.  Politicians, responding to virtual outrage, will demand action.  And then, enter the virtual world lock-down solution with IBM Tivoli Avatar Access Firewall Manager for zSeries Enterprise Class Virtual Worlds.  Because sometimes you have to create the problem before you can solve it…