Valuing IBM's Software Franchise
Zero Gravitas • 132 Comments
Zero Gravitas • 132 Comments
IBM's 21st Century Transition Is Failing
Peter E. Greulich • 256 Comments
Peter E. Greulich • 256 Comments
Oct. 15, 2015, 2:52 PM
- VMware (VMW +0.7%) is buying Boxer, a developer of enterprise e-mail/task management apps for iOS and Android, for an undisclosed sum.
- Boxer will be integrated with VMware's AirWatch enterprise mobility management platform (EMM - manages devices and apps). VMware exec Noah Wasmer: "The Boxer team ... has developed a mature personal information management (PIM) solution for enterprises that offers a container approach to mobile application management and security. Boxer ... supports market leading productivity, enterprise and social networking solutions including Box, Dropbox, Evernote, Facebook, Gmail ... Imagine, your apps and your data – seamlessly working together with one unified identity and NO logins or configurations – consumer simple, enterprise secure."
- For its part, EMM rival Microsoft has bought e-mail app developer Accompli (its products now underpin the Outlook mobile apps), calendar app maker Sunrise, and to-do list app maker 6Wunderkinder.
- Separately, VMware and IBM have announced a partnership to make it easier to move workloads running on VMware's vSphere server virtualization platform to IBM's SoftLayer public cloud infrastructure. VMware's NSX network virtualization/SDN software can be used to enable the global migration of live workloads, and its VSAN storage virtualization software to provide integrated storage management. VMware and IBM have common cloud rivals in Amazon and Microsoft.
Oct. 13, 2015, 7:56 AM
- Etihad Airways and IBM (NYSE:IBM) have signed an information technology deal worth $700M over 10 years that aims to improve the airline's booking systems and cut costs from its network operations.
- The agreement also includes customer data analytics and the development of technology that can predict weather patterns.
- IBM sealed a similar deal with Lufthansa last year, which the German airline said would generate cost savings of €70M a year.
Oct. 8, 2015, 12:21 PM
- A rumor that an activist investor (possibly ValueAct Capital) has taken a stake in IBM (IBM +1.2%) has led Big Blue's shares to catch a bid. The S&P is nearly flat, and the Nasdaq down 0.5%.
- Reuters reported in April IBM had hired banks to help defend it against potential activists, following attempts by disgruntled IBM shareholders to reach out to them. ValueAct and Pershing Square Capital were said to have turned the shareholders down.
- Many of Big Blue's actions in recent years - job cuts, large buybacks, the sale of non-core/underperforming business units - are straight out of the traditional activist playbook.
- Update: Some other IBM news: The company has rolled out single and dual-CPU Linux servers running on its Power CPUs, and supporting its OpenPOWER platform (allows Power servers to be developed by third parties). IBM has also announced a partnership with financial information giant Thomson Reuters (NYSE:TRI) to develop joint solutions that leverage the Watson A.I./cognitive computing platform for analytics and natural language-processing, among other things.
Oct. 5, 2015, 2:11 PM
- Acquisition-hungry IBM's (IBM +3.1%) latest target is Cleversafe, a provider of object storage systems and software. As usual, terms are undisclosed.
- Object storage, widely adopted and supported by cloud service providers (many enterprises also use it), requires less overhead for storing content such as documents, photos, and videos, and thus offers better scalability than traditional file and block-based storage systems; it's also easily accessible via HTTP. On the downside, it's less suitable for databases and other frequently-changing content. Amazon's S3 service (over 2T objects stored) is an example of a popular cloud object storage service.
- Cleversafe was founded in 2004, and has over 350 patents. Its platform uses proprietary software and algorithms to encrypt, distribute, and retrieve objects stored on commodity hardware, potentially across multiple locations. Clients include photo site Shutterfly and U.K. pay-TV provider Sky. EMC's Atmos object storage business is a rival.
- IBM's storage hardware revenue fell 10% Y/Y in Q2, and IDC estimates the company's external disk storage share fell to 11.1% from 12.1% a year earlier; both flash/hybrid storage upstarts and contract manufacturers selling to cloud providers have been gaining share. In February, IBM promised to invest over $1B in storage software over the next 5 years.
- Shares are rallying on a day the Nasdaq is up 1.4%, and the S&P 1.6%.
- Recent IBM acquisitions
Oct. 1, 2015, 2:54 PM
- IBM (IBM -1.3%) has launched Bluemix Local, a service for its Bluemix cloud app development platform (PaaS) that allows companies to build and run cloud apps behind their internal firewalls - useful for industries with strict data security/compliance policies - and thus enables hybrid clouds covering apps deployed both locally and on IBM's public cloud.
- Bluemix's rivals include Microsoft (Azure), Amazon, Salesforce (Heroku), and EMC/VMware's Pivotal unit; Microsoft has strongly emphasized Azure's hybrid cloud abilities. IBM recently updated Bluemix to provide better Java resource support, and has also rolled out a Bluemix-based service for mining Twitter data.
- Also: IBM has announced a $1B 10-year cloud services deal with Norwegian IT services provider EVRY. The deal includes cloud infrastructure services delivered by IBM's SoftLayer unit through a Norwegian data center.
- Meanwhile, IBM researchers state they've found an improved way to build transistors using carbon nanotubes - long an area of interest for the chip industry, as it looks for ways to prolong Moore's Law beyond this decade - instead of silicon. Big Blue thinks the advance, which involves a way to continue shrinking the width of metal wires connected to nanotubes without increasing electrical resistance, could eventually (likely at some point after 2020) reduce the contact point between wires and nanotube transistors to just 40 atoms in width, and 3 years after that 28 atoms.
Sep. 28, 2015, 4:45 PM
- IBM is buying Meteorix, a provider of consulting and implementation services for companies looking to deploy Workday's cloud HR and financials apps. Terms are undisclosed.
- "The planned acquisition of Meteorix can make IBM one of the leading, most qualified and experienced Workday service providers in the world," says an IBM exec. Workday, which has been taking share from on-premise software alternatives, has an FY16 (ends in January) revenue consensus of $1.16B, and an FY17 consensus of $1.59B. Its clients include a number of U.S. multinationals. Meteorix has 200+ Workday consultants.
- Big Blue had 2014 "cloud revenue" of $7B. However, that figure includes sales of hardware, software, and services used to enable cloud deployments, and which often came at the expense of on-premise sales. The company's "cloud delivered as a service" revenue was on a $4.5B/year run rate as of Q2.
- Recent IBM acquisitions: StrongLoop, Merge Healthcare, Blue Box
Sep. 21, 2015, 4:07 PM
- Though Bitcoin (COIN, OTCQB:BTCS) remains well off its 4-digit late-2013 highs - Coinbase currently shows Bitcoin selling for less than $229 - major enterprises continue throwing their weight behind the blockchain - the secure public ledger technology that underpins Bitcoin and other cryptocurrencies.
- IBM has been working on its own version of the blockchain, with plans to open-source the software when it's finished. Big Blue suggests its solution could be used to secure digital contracts, as well as drive transactions by allowing banks and others to share the same system of record.
- In March, Reuters reported IBM has held informal talks with central banks about a cash/payment system that uses the blockchain to drive transactions involving existing currencies, and doesn't require a bank or payment processor (thus lowering transaction fees).
- Meanwhile, JPMorgan, Goldman Sachs, UBS, RBS, and 5 other i-banks have announced plans to work with startup R3CEV to create standards for using the blockchain within the financial industry. RBS exec Kevin Hanley: "Right now, you’re seeing significant money and time being spent on exploration of these technologies in a fractured way that lacks the strategic, coordinated vision so critical to timely success. The R3 [blockchain] model is changing the game,"
Sep. 20, 2015, 11:03 AM
- HP (NYSE:HPQ) recently announced that it would cut around 30K jobs, but despite its size, the corporate layoffs are not the largest of the recent past.
- According to outplacement firm Challenger, Gray & Christmas, the following list can claim that distinction.
- IBM (NYSE:IBM) layoffs: 60K - July 1993
- Citigroup (NYSE:C) layoffs: 50K - November 2008
- Sears (NASDAQ:SHLD) layoffs: 50K - January 1993
- General Motors (NYSE:GM) layoffs: 47K - February 2009
- AT&T (NYSE:T) layoffs: 40K - January 1996
- Ford (NYSE:F) layoffs: 35K - January 2002
- Kmart (SHLD) layoffs: 35K - January 2003
- Circuit City layoffs: 34K - January 2009
- Boeing (NYSE:BA) layoffs: 31K -September 2001
- Bank of America (NYSE:BAC) layoffs: 30K - September 2011
Sep. 10, 2015, 12:05 PM
- Big Blue plans to integrate StrongLoop's products with its WebSphere middleware/app server line, as well as with its Bluemix cloud app development platform. IBM: "Combining StrongLoop's tools and services with IBM's WebSphere and Java capabilities, IBM will help clients bridge Java and Node.js development platforms ... Through integration on IBM Bluemix, these Java and Node.js communities will also have access today to many other IBM and third-party services including access to Mobile Services, data analytics and Watson."
- Back in March, IBM bought A.I./deep learning API provider AlchemyAPI. The company's middleware revenue (covers the WebSphere, Rational, and Tivoli lines, among other products) fell 7% Y/Y in Q2.
- Separately, IBM's Watson Health unit (launched in April) has announced partnerships with drugmaker Teva and healthcare R&D outsourcing firm ICON. Both tie-ups involve using the Watson Health Cloud analytics platform to derive insights from large volumes of healthcare-related data.
- Update: Some more Watson Health news: IBM has named Deborah DiSanzo, formerly the CEO of Philips Healthcare, Watson Health's general manager. Big Blue also says it's opening a Watson Health HQ in Cambridge, MA that will house 700+ employees.
Sep. 8, 2015, 11:55 AM
- "I've still got money left to buy," says Warren Buffett (BRK.A, BRK.B), appearing on CNBC. "I never go below $20B in cash."
- On the Fed: "I've never made a decision based on what the Fed is going to do or not do." However, he puts on his FOMC hat and says he wouldn't be very aggressive on rate hikes. The economy, Buffett says, is growing at a steady, but not booming rate.
- On IBM: He purchased more shares in Q3.
- On BAC: Buffett would vote in favor of CEO Brian Moynihan retaining the chairman role. He's done a "first-class job," says The Oracle.
Sep. 3, 2015, 3:01 PM
- IBM (IBM +1.3%) is partnering with CPU core giant ARM (ARMH +1.2%) to enable devices supporting ARM's mbed IoT software/services platform to automatically register with IBM's IoT Foundation platform, and thereby access cloud-based IBM analytics services.
- IBM: "This unifies [mbed and IoT Foundation] at the point where information gathered from deployed sensors in any connected device is delivered to the cloud for analysis. The IoT connection also enables delivery of actionable events to control equipment or provide users with alerts or other information. For example, the triggering of an alarm message on a washing machine to ask the owner to confirm a breakdown engineer appointment if a fault is detected."
- With ARM's CPU cores used by billions of mobile and embedded devices (and billions more on the way), a wide variety of products can be covered. In addition to analytics tools, IBM's IoT Foundation supports the development of cloud apps (through the Bluemix platform) for analyzing IoT-generated data, and security tools for protecting it.
- ARM, meanwhile, has followed up on mbed by launching IFC, a framework for quickly creating networks of embedded, Web-connected, ARM-based devices.
Aug. 26, 2015, 1:49 PM
- Noting shares trade at 9.2x 2015E EPS and 8.8x 2016E EPS (compares with a 5-year average of 11.6x), Argus Financial has upgraded IBM (IBM +2.1%) to Buy, while setting a $175 target.
- Argus also expects Big Blue to see margin expansion as its sales mix shifts away from commodity offerings to higher-margin software and services tied to "strategic imperatives" in fields such as analytics, security, and cloud services. "[A]t this stage IBM is still rolling off significant low-margin and slow growth business. This transition will be a negative for revenue in the near term and an upturn is still some time away. However, EPS comparisons could turn positive by the end of this year or early next year, depending on end-market conditions."
- Consensus is for EPS to drop to $15.73 this year from 2014's $16.53, before rising to $16.13 in 2016. Revenue, affected by forex, hardware/services weakness, and the x86 server unit sale, is expected to drop 10.6% in 2015 and 0.6% in 2016.
- Separately, IBM has made a few cloud-related product announcements. 1) IBM's Bluemix cloud app platform (PaaS) has been updated to better support Java tools and resources. 2) Cloud management software from Blue Box (acquired earlier this year) can now be used to manage private clouds at IBM data centers. 3) IBM's Spectrum Protect backup software (competes against the likes of Symantec and CommVault) now supports direct cloud backups.
- IBM is higher on a day the S&P is up 2%, and the Nasdaq 2.1%.
Aug. 17, 2015, 2:55 PM
- While IBM (IBM +0.1%) has supported Linux on its System z mainframes for 15 years, its new LinuxONE systems are the first mainframes to exclusively run on the open-source OS, and thus eschew IBM's proprietary z/OS.
- A high-end mainframe called LinuxONE Emperor (named after the penguin) supports up to 8K virtual machines or hundreds of thousands of lightweight app containers. The less powerful LinuxONE Rockhopper (ditto) is said to be "designed for clients and emerging markets seeking the speed, security and availability of the mainframe but in a smaller package."
- Like System z mainframes, LinuxONE supports Red Hat (RHT +0.5%) and SUSE's Linux distributions, while also adding support for Canonical's Ubuntu Linux distribution. Big Blue also promises to support a slew of open-source software tools/platforms popular with Linux users, such as MariaDB (database), Apache Spark (in-memory big data engine, an area of interest for IBM), and Docker (container platform).
- Notably, IBM will offer subscription-based/pay-as-you-go pricing options for LinuxONE, as it tries to win over businesses worried about the traditional up-front costs of deploying a mainframe.
- Thanks to an upgrade cycle, IBM's mainframe revenue rose 9% Y/Y in Q2 and 118% in Q1, after falling sharply in 2014. After adjusting for the highs and lows of cycles, servers based on Intel's Xeon CPUs have been gradually taking share from mainframes for years.
Aug. 14, 2015, 5:56 PM
- Berkshire Hathaway (BRK.A, BRK.B) disclosed in its latest 13F filing that it sold off its shares in Phillips 66 (NYSE:PSX) and National Oilwell Varco (NYSE:NOV) during Q2, as it continued to cut its positions in energy companies.
- Meanwhile, BRK kept unchanged its stakes in its “Big Four” holdings American Express (NYSE:AXP), Coca Cola (NYSE:KO), Wells Fargo (NYSE:WFC) and IBM.
- Warren Buffett seemed to hint during a CNBC interview this week that BRK may have built up its IBM stake in the current quarter, saying "I love it when it goes down" when asked whether he was concerned about the stock’s recent performance.
- Buffett’s only new stake in the quarter was a 20M-share investment in auto paint maker Axalta Coating Systems (NYSE:AXTA), which BRK bought from Carlyle Group.
Aug. 6, 2015, 9:38 AM
- IBM is buying Merge Healthcare (NASDAQ:MRGE), a top provider of software for managing and processing medical images, for $1B in cash after factoring net debt, or $7.13/share. The price represents a 32% premium to Merge's Wednesday close. The deal is expected to close later this year.
- Merge's software is said to be "used at more than 7,500 U.S. healthcare sites, as well as most of the world's leading clinical research institutes and pharmaceutical firms." IBM plans to integrate Merge with its recently-launched Watson Health unit, with the goal of providing image analytics that leverage Watson's A.I./deep learning technology.
- Big Blue: "IBM plans to leverage the Watson Health Cloud to analyze and cross-reference medical images against a deep trove of lab results, electronic health records, genomic tests, clinical studies and other health-related data sources, already representing 315 billion data points and 90 million unique records. Merge's clients could compare new medical images with a patient's image history as well as populations of similar patients to detect changes and anomalies."
- In April, when Watson Health was launched, IBM announced it's buying cloud patient data analysis software firm Phytel and clinical database/healthcare analytics app provider Explorys. The company also announced healthcare-related partnerships with Apple, Medtronic, and Johnson & Johnson.
Jul. 29, 2015, 5:45 PM
- Leidos Holdings (NYSE:LDOS) spiked to a 5% gain just minutes before the close, after the U.S. Defense Department said it chose a team led by the company to build a new electronic health record system for 9.6M current and retired military service members.
- The contract has an initial value of up to $4.34B and runs for 10 years, the Pentagon says.
- LDOS and Cerner (NASDAQ:CERN) beat out a team of IBM and Epic Systems, and another team that included Allscripts (NASDAQ:MDRX), Hewlett-Packard (NYSE:HPQ) and Computer Sciences Corp. (NYSE:CSC)
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