Decline of IBM: When companies fail at redefining their business



  • Here is my first official topic on WTF...

    I was reading the great article on IBM's decline. An IBM insider provided some interesting points on the coming IBM collapse.

    The decline and fall of IBM

    It looks like there a few things going on internally that either are being ignored, or there is an unwillingness to do anything about it.

    I checked Google Trends and came to some interesting conclusions (while subjective in itself) it is interesting if you look at image two and then image three. But lets start with what we know. From 2004 to now IBM has lost momentum and has lost its relevance as the story explains.

    In this next image I pulled in some other well known companies and included Apple.

    Seems like a fairly typical sector decline. So I made it interesting and added the second 800 lb gorilla to see what two giants colliding looks like with the added bonus of feeble and dying tech companies fading into oblivion below them.

    So since 2004 these have been the trends.

    IBM has been trying to turn the train on the tracks and evolve itself into services company but from that article it may be interesting to keep an eye on the impending fail/death of a dynasty.

    Of course, after Atari (a conversation elsewhere on WTF), I realize that companies don't seem to die, they merge, reverse merge, go bankrupt, get parsed out and culled for useful things and their yuck still lingers for generations.

    For example Enron...While not a technology company, had monolithic qualities like IBM, Enron still exists today. My best friend from high school works for them as a title researcher for oil land in Beaumont and Cleaburn. Ta-da! we have EOG Resources

    So what should you do with this information? I asked my hedge fund buddy and showed him this stuff, he said it was an excellent gift and that he was going short the stock via options which can produce amazing gains (it can also exponentially break you if things shoot the other way).

    I don't know options, but I know how to short stocks. I also know we are in a midterm election year and historically that is hard on stocks until mid-October then we have window dressing into the end of the year. So shorting IBM into Sept could be an interesting position to take if one were so inclined. No advice here for you guys only thinking out loud...Besides...I'm a perma-bull

    Where is fuckedcompany.com when you need them?

    Filed under: Companies are people too.


  • Banned

    Hmm, so that IBM book is from Cringely. I love his stuff, will have to buy it.

    But still, can anyone here tell me what IBM actually does -- even back in 2004? What do they do? Legacy mainframes? Enterprise software integrations? I don't think this decline was exactly unpredictable.



  • They helped EDS formally SABRE invent the national airline ticketing system. I think that was back during the Constellation days.

    And after that...not sure...

    I worked for Sabre in 1997 right when they were building out travelocity, ah those were the days where any flea-ridden website could get bank, go public, run to $100 a share then crash and burn. Dr Koop anyone?. but Sabre's ticketing system hadn't changed much...It was a cluster of mainframe computers surrounded by server racks of NT network servers in a raised floor server room. It cluncked away as services folks mapped out planes/seats/availability on green screen terminals, ticket printing was their focus in the late 1990s along with Travelocity.



  • Using options to short is easy. Buy put options -- they give you the right to sell at the price of your choosing (set at when you buy the option, of course). Or sell call options. They give other people the option to buy at a price of their choice -- from you.

    Put options are safer. The only money at risk is the price you pay for the option. Call options are arbitrarily risky. If the price shoots up to 100$ a share and you sold calls for 5$, you (effectively) need to buy 100$ shares to sell at 5$.

    Use Black-Scholes (or a better model) to price them.

    But, I'd take a closer look at IBM before I shorted them. Their EBITDA has been rising since 2002, and has been pretty stable over the long term. Suspect quiet cash-flow generating work. Cash-flow is where the money is made. Literally. Who cares if Joe Schmoe isn't interested in them?

    If anything your graphs show that this is a good time to go long on IBM. The balance sheet looks okay. The ROE looks retarded high. High margin cash flows.

    This post is not due diligence. Do your own due diligence. Etc.



  • How to never fail as a company: sell phones.

    Sell cell phones.


  • The Cold Doesn't Bother Us Anyway

    Unless your name is Nokia and you appoint a Microsoftie as your CEO.



  • Well you are right. I ran a DCF on them and they are coming back at $413 per share. Melt value is: $81 a share (so something is not right)...Earnings power shows $148 and the Ben Graham model shows over $300 a share...but something is not right...FCF is an important metric for me. For IBM I am seeing $22 billion TTM and roughly $19 to $22 YOY...I like to run a Piotroski screen on my stocks to see if they are moving in the right direction... A Piotroski of 7 or better with FCF and stock buyback is a good combo for me. IBM has a Piotroski score of 6.

    Well my theory is that they 'might' be cooking the books. They are looking like a growth story when they are clearly in their autumn years.

    Filed under: Creative Accounting



  • @codinghorror said:

    can anyone here tell me what IBM actually does

    Jazz!!!



  • @codinghorror said:

    But still, can anyone here tell me what IBM actually does -- even back in 2004? What do they do? Legacy mainframes? Enterprise software integrations? I don't think this decline was exactly unpredictable.

    Uh... They own CPLEX? That's pretty much the only thing associated with IBM I've seen in the past few years.





  • The discrepancy between book value and cash flow pricing could just be due to contracts for hire not being allowed to be put down as assets. In fact, that's what you would expect, if they have big juicy profitable contracts.

    If you really have the money to speculate, and not just putz around, you owe it to yourself to find out what is really going on.

    DDM is king for modeling. DCF is almost as good.

    This is not due diligence. Do your due diligence. Etc.



  • Nokia could have been great. Their hardware engineering and build quality is top rate. Open up a 8210 from back in the day. The first thing you notice is how easy it is to get into it and get it grouped into its parts. Normally Nokia phones had two circuit boards overlaying each other one for the keypad, display and speaker, and the other did...well?... all that other stuff. Then take your equivalent Motorola of those days. Pure garbage, some I opened to explore and show my kids had rust in their components inside and paper speakers that would turn to dust if you touched them.

    But my favorite of the old pre-smart phones is below..... The Samsung T502. I got lots of compliments on that phone.

    And now I have the one on the left (below). It came with its own dolly so I could push it around town with me. Its so big, my gas milage went down in my car from driving it to and from work. Plus I got a ticket for not putting a seat belt on it. Guys at work yell to people down the hall not to get in my way and that I am coming through with my flat panel display. I caused three planes to crash last night because of my amazingly bright super AMOLED gorilla glass 3 display leading planes away from the runway. My fault though, I shouldn't have been texting my wife love poems while I was driving. Oh well, the occupational hazards of the Note 3, I guess it could be worse. I could have bought the Samsung MEGAladon.



  • Holy shit...listen to you.

    I'm impressed. But I was only running the stock through some simple models. I would never buy IBM. I buy stocks between $1 and $15 a share. I can't make any money off IBM priced stock. Now in the options world I probably could. But I have never traded options like that. I only know the buy-write/covered calls strategy (as a hedge) on long positions that could turn against me.

    Filed under: I don't speculate...Except when I do.


  • Discourse touched me in a no-no place

    @codinghorror said:

    can anyone here tell me what IBM actually does

    Service very large company/government contracts. There's a long list of other wretched hives of unrepentant scum and villainy big contracting companies in the same sort of position.



  • @codinghorror said:

    Legacy mainframes?

    I wish they where. Get around in real enterprises and you will find that they are not dead. They are just hiding in the shadows. Hidden by blinking lights and shiny software.
    It is wat we do around here: hide the mainframe behind a new interface, call it software-as-a-service and sell it as a major product version. In the end it is still the same, but new(!) mainframe doing the heavy lifting.



  • I remember the early 90s when everyone thought IBM was toast:

    My great-great grandfather was an IBM employee when it went public and he bought 2 shares. There are still several tens of thousands of dollars of that stock left in the family.



  • @boomzilla

    Wrong chart....Here is what you need to see:

    So if you had 1000 shares at the beginning you would have 75,000 shares today at $180~ a share = $1.35 million today.

    There is something to buy and holding stock like your great Grampa did but it is difficult to do that and not get killed. You would have to go to the small cap and micro caps spaces and figure it out there to replicate success (or get lucky). Maybe Zinga or Groupon will take over the world and be the next IBM. Sounds ludicrous right? Who in their right mind would invest in such a way?

    Conversely, what if your great Grampa's life had been different. What if he was an Eastman Kodak employee, or how about GM or any of the investment banks and re-insurance companies or even RadioShack (lol, we laugh but they were relevant once).

    Anyways, I am glad you still have that old Blue Chip stock and you have had fortune with it. You know, you should find it and if it is a certificate take a picture of it (if it is still a paper issue).

    It might look something like this:

    Filed under: Past performance is not an indicator of future results



  • I have seen those monolithic demons first hand. They come from a deeper darker place in the IT world.

    I barely made it out alive.



  • @Frank said:

    Wrong chart....Here is what you need to see:

    No, your chart is still wrong (and doesn't really add anything that my chart didn't already have). IOW, the assertion in your title is begging the question.

    @Frank said:

    Conversely, what if your great Grampa's life had been different. What if he was an Eastman Kodak employee, or how about GM or any of the investment banks and re-insurance companies or even RadioShack (lol, we laugh but they were relevant once).

    True, that was just an interesting story*. The real point was in the initial sentence. I don't personally own any shares, though if my dad doesn't get rid of all of his, I'll get a quarter of those.

    * In fact, the story goes that employees were urged to buy a single share, and he was apparently some sort of supervisor or something and decided he'd go crazy and buy two. OK, maybe not that interesting.


    Filed Under: Not dead yet


  • :belt_onion:

    A hilarious thread, as I set here talking shop with 4 IBM contractors about purchasing yet another IBM appliance. Sure, google searches from the general public for IBM may be down, but given their aim as far as I knew is big business, I doubt they really give a crap about that.



  • @codinghorror said:

    But still, can anyone here tell me what IBM actually does

    Easy. The supermarkets around in my town have the IBM self-checkout dinosaurs. They are a godawful pieces of shit, crashing more often than I'd like them to, but mostly better than the humanoid staff.



  • I used to run a save change object in 1999 on an old AS/400 pushed to the back corner of our datacenter, we used it for an antiquated inventory system that couldn't be bridged (and for holding boxes of power cables and burned out hot swap hard drives). I remember how amusing it would be for me to stick a key into it and turn the key like an ignition switch...after I ran my commands I had to walk in and out of there 50 times a night to change the tape 10 times which would last 4 hours if I didn't forget about it. Waiting for my indicator light to flash on the tape drive 'was awesome' ....Then I would take all the tapes and stack them in a lockbox to be shipped off-site.



  • @Captain said:

    contracts for hire not being allowed to be put down as assets

    Correct "contracts for hire" are under the same general category as other "service contracts". You can only book as Current Assets (in A/R) that portion of the contract which you have actually performed on and billed. You can only book in Long Term Assets(Contract Holdings) the portion of the contract you expect to perform on and bill within a "fiscal year" time frame.

    Edit: This is GAAP in my industry YMMV according to industry, and government wack-a-doo-ry…



  • @codinghorror said:

    But still, can anyone here tell me what IBM actually does -- even back in 2004? What do they do? Legacy mainframes? Enterprise software integrations? I don't think this decline was exactly unpredictable.

    From my limited experience with them I'd say sleep-in meetings.



  • HOLY NECRO BATMAN <!-- f this -->


  • The Cold Doesn't Bother Us Anyway

    @JazzyJosh said:

    HOLY NECRO BATMAN

    :-( another coupel of weeeks and we could have had an aniversary necro.



  • Haha! yes! YES!!!

    Someone revived one of my old posts.

    My necro powers grow stronger.



  • @JazzyJosh said:

    HOLY NECRO BATMAN <!-- f this -->

    It showed up as new for me, so when I read

    @Frank said:

    we are in a midterm election year

    I thought :wtf: and had to check the posted date.



  • @hungrier said:

    I thought :wtf: and had to check the posted date.

    My state has elections in odd years you insensitive clod!



  • Yes! Yes!...With each comment me and my post become more Necro.

    Lol...Need to shake out the rigormortis get my head back in the WTF game.



  • @Frank said:

    Yes! Yes!...With each comment me and my post become more Necro.

    Lol...Need to shake out the rigormortis get my head back in the WTF game.

    Dude, rehabilitation center for recovering addicts is :rightarrow: (symbols on Android and DissedCourse don't mix, FFS) that way.


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