Charles Fitzgerald

Charles Fitzgerald
Contributor since: 2013
Company: Platformonomics, LLC
Have you recomputed IBM's performance lately?
Yes, I would say it makes my point completely when Vietnam Mobile Telecom Services is the best cloud customer IBM can come up with...
What is a "cloud implementation"? I bet an awful lot of these are really dubious.
At least in the web era, IBM could go to a company like eBay and sell them DB2, even if they couldn't get them to run it on a mainframe. Now what does IBM have to sell that any leading edge company would want?
I guess their future is assured then.
So when is IBM going to actually compete in cloud and how? Afraid it takes some products.
Why don't any large cloud providers use IBM? IBM's collapsing x86 server is a big canary in coal mine here.
My point is that while the IT director may not get fired, their company will go out of business because you can't be competitive using IBM. Show me the companies that are world beaters or staving off disruption using IBM?
There really are only two examples in history of major tech company turnarounds - Apple and IBM under Gerstner. Beyond that, if you miss a transition, you're pretty much toast.
We do know what IBM is investing in because we can look at their product line. That is what I think the financially oriented miss and is the fundamental point I am making. IBM's financial performance is ultimately a function of their product portfolio. And if the product portfolio misses the mark, their financial performance will suffer.
Look at x86 servers. They're sucking wind yet that is where the market is. They tried to divest the business to Lenovo, but failed. So IBM is either in a situation where they are losing share or want out of the category altogether, but x86 servers are the fundamental hardware building block for enterprise and cloud computing. Not the museum piece mainframes and RISC boxes that IBM sells to their existing customers who are dying off with every passing day. Maybe IBM is "skating to where the puck will be" but where is that? Where is the leapfrog offering from IBM? They are losing share today, so shouldn't they be pulling some rabbit out of their hat today?
Show me a product where IBM has an innovative, market-leading, well-respected offering?
I don't suggest past performance is luck. I suggest that the financial cookie jar is empty and they haven't invested to renew their technology product portfolio. You can invest your money in new products or give it to shareholders. The latter to the exclusion of the former eventually catches up with you. Just because IBM has had products it could sell in the past doesn't mean it will in the future. Tech is all about change. When the world changes and you don't, it is brutal. The CFO is usually the last guy to know.
What is your faith based on? Their product roadmap for cloud or mobile? Their innovation track record over the last decade? How about some specifics justifying your faith? Or is it just a hope that past performance will continue in the future? That behavior is the exception rather than the rule in technology, so why do you believe IBM will be lucky again?
I'm not saying they did anything wrong - when companies miss, they are happy to miss big. This can take the form of delaying revenue and/or increasing the size of a kitchen sink writeoff. This is how the real world works.
Are you saying cloud and mobile are not big markets today?
What are the fruits of IBM's research in the 21st century? Where has it turned into material new businesses? Yes they spend lots and gets lots of patents, but they don't seem to turn it into business.
They have been buying smaller companies because they can't innovate themselves.
You are placing a lot of faith in IBM's ability to invest in the right things to be successful for the next techno era. You'd think we'd be able to discern those investments, but they're hard to see. In fact. they're missing the boat on what look like the big trends and aren't offering up any alternative. But maybe blind faith is a better way to invest.
Well, I think this is Warren's first tech investment, so we'll see how it goes for him (and you). Looking forward to reviewing IBM's results in the coming years.
I'm not making a stock call for this quarter, though if you shorted on my original post you would have picked up over 20 points. I am making a call on IBM's ability to survive and thrive through the next technology era.
Warren has historically said he doesn't understand technology. He said when he bought IBM he liked their financial roadmap. I don't believe Warren is buying IBM because he has a deep understanding how they will navigate technology inflection points.
Do you think Bill is telling Warren to buy IBM? As a former Microsoft employee, I am pretty skeptical on this front.
I'm not saying sell IBM and buy PG. I am saying don't buy any tech stock for a 50 year time horizon and if you do have that time horizon, a company like PG is a much better choice.
I got rid of the trivial position I had in IBM today. Have not gone short - not usually my strategy. I'd rather invest in the guys who are eating IBM's lunch.
My point is that companies like Google and Facebook are investing hundreds of millions of dollars in new datacenters for new workloads. NONE of these new workloads are on the mainframe, despite all the IBM propaganda about how great the mainframe is for any new workload you care to mention. IBM does a great job extracting tons of money of existing workloads, but those workloads are slowly moving and there is no growth in new workloads.
Warren is also the first to admit he knows nothing about technology.
My point is technology is a tough business because of fundamental change. If you went back 50 years ago, there are not many tech companies still alive from that era. IBM is the exception, not the rule. If you go forward 50 years, PG is much more likely to be around than any technology company that exists today.
In the real world, if a company is going to miss, they will slow down their end of the quarter push and let business slip into the next quarter.
Not many technology companies deliver consistent, much less superior returns across multiple generations of technology. Managing those inflection points is extremely hard and most technology companies don't survive those transitions. IBM almost didn't in the 1990s. Be glad you didn't buy in the late '80s as they proceeded to lose two-thirds of their value in the next decade. But IBM did survive and even thrived in the subsequent decade. Now they have to pull another rabbit out of their hat to figure out how to prosper in the cloud era, but, to mix a metaphor, their cupboard looks pretty bare.
My argument is not with IBM's past performance, but rather that it is very rare for companies to navigate the inflection points successfully and IBM in particular seems challenged to succeed in the next generation given their portfolio, ability to build technology (which it turns out is important for tech companies and IBM is a pale shadow of its former self here) and the headwinds they face from market dynamics.
Buying a tech stock to hold for 50 years is probably a bad idea. Go buy P&G or Coke if that is your holding period.
I have been in the middleware business in the 21st century and have a good perspective of IBM's offerings that some have referred to as "a dog's breakfast". The reality is new apps don't get built on IBM's middleware and the complacent big companies that happily bought IBM are realizing that their applications matter and they are not going to be successful paying a lot for IBM's high complexity platform.
I'll reiterate one of my questions above - where are the IBM customers who are winning with IBM technology? Certainly no startup or disruptive company relies on IBM - it isn't even in the consideration set. The guys who are getting disrupted are IBM's customer base. That is a headwind as technology becomes more important to most companies' ability to compete.
You can look at the stock based on the numbers, but underneath those numbers is what they offer customers and how their offerings stack up to the alternatives. Nothing lasts forever, especially in technology, and the days of no one getting fired for buying IBM are ending. But we'll watch the results.
Yes IBM does lots of interesting work at the semiconductor process level, but they don't have any interesting chip architectures or foundry business to monetize it. POWER briefly shined in the game consoles but it is irrelevant today. IBM contributes bits and pieces to open source projects, but this is because they don't have their own competitive technologies at those levels. Watson is a demo, not yet a business. How is Watson going to compete with Google Now or Siri? IBM markets itself as an innovator, but hard to discern the revenue streams from new technologies in the 21st century.
Happy to revisit in 2016.
I'm a fundamental guy who works in the technology business and see what IBM has (or rather doesn't) in the pipeline. All those numbers you cite are predicated on having products and services customers want to buy. Where are the worldbeater IBM products?
Q2 will probably be ok. The magnitude of the miss was sucht hat when they realized they would miss in Q1, they pushed a bunch of business into Q2. IBM and Wall Street will then reassure themselves that all is well. Q3 will be bigger test.
Where is the puck going to be? Cloud? Insourcing? Consumerization? Mobile?
Where is IBM in any cutting edge technology category?
At best, they are a conglomerate. The problem is technology businesses decay without new investment. Where is the new investment? They have a lot of old businesses, so maybe they're dump a bunch more, but at some point you have to renew the technology portfolio.
What does IBM get for its R&D spend? Name an IBM product that has had a broad impact in the 21st century?
The fact companies like HPQ and DELL want to follow IBM's footsteps isn't a validation that they have the right strategy for the next decade.
Past performance is no guarantee of future returns, especially in the technology business which is ruthless to those who don't navigate the inflection points.
Agree with you IBM once bestrode the technology industry like a colossus. But they don't lead the industry any more. They've been a great stock in recent years based on financial engineering, but nothing lasts forever. They're out of costs to cut, the earnings cookie jar may finally be empty and there isn't much to seen from their labs.