We can argue about whether IBM's (NYSE:IBM) earnings announced this week are better or worse, but for those investors who have bought and held here is what's actually happening at IBM and the likely end game that will result. It is not pretty.
IBM has focused its efforts mostly on the biggest companies in the world. They are the ones that can pay IBM's high prices. The other 90 percent of the IT market is largely ignored by IBM though it accounts for 10x more in total IT spending. Amazon and Microsoft are catering to these firms and because of the size of this market they are enjoying enormous economies of scale. Amazon and Microsoft have built huge ecosystems around their services. So it will be easier for Amazon and Microsoft to go after IBM's big customers than it will be for IBM to play in the bigger market.
There's nothing IBM can do at this point to gain a respectable share of the cloud or any CAMSS (cloud, analytics, mobile, social, security) market, which is why current earnings show at best flat growth. They are too late, too far behind, and too investment averse to catch up. IBM's best hope is to give the illusion they are relevant and hope that will buy the time they need to find new business opportunities.
Let's be clear: IBM has irreparably damaged their core businesses. Many writers covering this company fail to understand the depth of damage already inflicted. IBM's corporate culture is too lethargic, there is no empowerment or delegation of authority, the future businesses cannot generate the business needed to sustain the company in its present form. This is all because current leadership is horribly out of touch with the times and the state of technology.
So for the next year IBM will do whatever it can to continue this illusion, to keep shareholders happy, and to make Ginni Rometty look good. She will retire at age 60 like her predecessors and then the sins of the past will become obvious to the world and IBM will be in serious trouble.
In the 1990s during IBM's darkest hours the company had supportive customers, good technology and a strong workforce. In the past 10 years they've destroyed all of those attributes. The foundation the next CEO will need to save the company will not exist.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.