IBM Is Bullish on IT

Excerpts from IBM’s Q408 conference call on the prospects for the IT market:

Integrated Technology Services revenue was flat as reported and up 6% at constant currency. Although signings were down this quarter, we continue to see good results in our key infrastructure plays.

Investing in IT:

We’re opening a new Technology Services Delivery Center in Dubuque, Iowa. This center will primarily support IBM’s U.S. strategic outsourcing clients.

We recently announced the creation of a Delivery Center for Application Services located at Michigan State University... [to] provide innovative application development and support services to modernize older and less efficient IT systems for state and local government agencies and universities, certainly a timely investment.

Profits up, corporations focused on cost-cutting:

Global Business Services delivered a record level of profit again this quarter. Pre-tax profit was up 26% and margin expanded 3.6 points to 14.9%, the best ever... 2008 represents the third straight year of profit growth greater than 20%.

Worldwide Financial Services declined 1% at constant currency... These clients remain focused on cost reduction, risk management, and integration services.

In this tough macro-environment, customers are focused on reducing the cost of running their IT infrastructure.

Poised for stimulus:

We see a real opportunity in smart infrastructure as governments around the world launch massive stimulus programs focused on things like next generation smart grids, healthcare IT and broadband.

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Comments

[Moon Kil Woong:]

IBM has been benefitting from the retirement of their old pensioners and their new employee packages that are not as sweet for a long time. Perhaps this is why it is so hard for it to make much ground in terms of it's stock price. Any major gains in IBM is often sent to pay off a large underfunded pension and any downturn IBM uses the pension fund as a spare piggy bank.

I can see why there is no pension fund reform these days considering pensions are becoming relegated to a thing of the past. Hopefully, matching 401K funds won't join them, but right now they seem to be on the endangered species list (not executive planes, club cards, bonuses, and autos). Funny how that works isn't it.

Jan 26 02:37 PM

[Sentinel:]

"I can see why there is no pension fund reform these days considering pensions are becoming relegated to a thing of the past. Hopefully, matching 401K funds won't join them but right now they seem to be on the endangered species list...."

I don't know why your comment spurred this thought constructe....but it does seem like things that used to be considered a fact of life in terms of companies rewarding their employees for making the company profitable and successful (what we used to call "fringe benefits") are dropping like flies.

In other words, people are no longer assets, they are liabilites. You are only less a liability if you help the company make money, but you are no more considered an asset.

So maybe (and here's is the thought I mentioned above) at the age of 45, I need to start completely over and learn robotics. After all, they will never unionize....they will never call in sick or hungover....they don't need insurance or medical or dental or a 401k matching plan....and they are productive 24/7.

And the boom country for robotics is Japan, particularly since they have a HUGE demographic issue coming up with their aging work force and a very restrictive immigration policy.

And not only will Toyota and Honda be eating our lunch in the automotive realm, soon when we will be dumping even more employees for robots, these companies will be eating our lunch in providing the U.S. with an uber-workforce of robots that will help companies obtain more profits from a high-cost profit constrained environment.

Just a thought.....Domo arigato for the post that inspired it!

Konnichiwa!

P.S. I don't go to Blockbuster anymore since those Redbox robotic DVD dispensers are popping up like mushrooms everywhere.

Jan 26 02:55 PM

[John Lounsbury:]

Two comments:

constructe - IBM's traditional pension plan is over-funded, it just doesn't cover a lot of the current work force, having been phased out in favor of a cash balance plan during the last decade.

Sentinel - Your comment is very perinent since IBM announced significant lay-offs yesterday. I personally know of two senior technical IBMers who left in 4Q/2008 after being passed over for promotion and receiving pay cuts. Both were internationally known in their fields and had no trouble getting new positions elsewhere at higher pay than the cut salary. Their problem at IBM was that they were over 50, highly paid and could be replaced with lower salaried younger employees that they had trained. I expect these cut-throat personel policies will eventually bite IBM because they are conditioning their employees to become similarly cut-throat with repect to their own careers.

Jan 27 09:18 AM

[John Lounsbury:]

Constructe - - -

I missed endorsing your comment on the emphasis of executive compensation (and perks) at the expense of employees. I think you have a very good point. Maintaining executive salaries, perks and bonuses while firing employees doesn't make sense to me.

I have commented before that I believe executive compensation plans should be modified to have pay reflect the lasting value of management, not what happened in the last quarter or the last year. The arguement that high salary and bonus packages are necessary to get competent management is counter to the example of Warren Buffett, who has, I believe, been paid $50,000 a year and has become one of the richest men in the world and built an iconic enterprise.

Jan 27 09:27 AM

[KnRama:]

In the Obama plan there should be adaquate money and resources to train people free for the Jobs that are in demand today and continual oportunity to retrain free as technology and skill requirements shift. And this should be available for free if a person scores more than 70% proficiency. The reason for the benchmark is that people need goals in order to acheive a level of capability that will be useful to themselves and future employers as well, and as a target that is tied to Money. This is called BailOut to Education. In India and China, education is comparitively free and focussed to the needs of economy. You do not need great efficiency in essay writing, if you were to be trained as an IT coder.

Feb 06 08:03 AM