Thread regarding IBM layoffs

@1lrn+1m8w85ko What do we use now that CMVC is dead and gone? RTC (Rational Team Concert, Connect, Combustible Material?? I was never sure what the C stood for.) is now going through its own death throes. (I'm sure IBM still sell it to some fools.) IBM is doing more and more with Enterprise GitHub. We may be id--ts be we did recognize that Slack is better that Sametime and Outlook is better than Notes and ... well you get the picture.

A different question is: did IBM get anything of really lasting value from buying Rational? The purchase price was less than Lotus. But that's like buying two cars you really didn't need and really didn't know what to do with and then, much later, finding a su---r called HCL willing to buy one of them used. Once RTC dies, are there any "classic" Rational products in the catalogue?

They forced AIX into CC BACK IN 2005-2007 or so. Most people with experience advised strongly against this. It was disastrous. Then, Kumar demanded “how did this go wrong” sessions, as if the predictions were never made. That seems to be SOP for quite some time now. Ignore any opposition, no matter how reasonable it might be, then spend millions to whitewash the failures. Terminate, or at least blacklist anyone who was not onboard, since they “lack vision”, then terminate the ones who drank the koolaid, when the mission fails.

had and proved watson - buy didn't monetize it

"failed Rational Clear Case experiment..."

When I left, IBM was still using CMVC in every division I think...what do they use now?

IBM is another cautionary tale of what happens when a company thinks all problems can be solved by offshoring and acquiring innovation (rather than successfully developing it's own).

Yes, they employ too many people for the job. BUT, they often fire the very people who would prevent such costly overgrowth! I’ve watched this happen in AIX for 20 years. Disciplined planners, process engineers, business analysts, et al, were often the first on RA lists. Agile was forced on the teams, schedules shifted right, customers became the test bed. I can only guess the cost of the failed Rational Clear Case experiment, which many (quickly RAd’d) experts advised AGAINST. The constant, costly “Lessons Learned” that blow the budget for future enhancements…the extremely costly, pointless “Words Matter “ campaign in recent years ate development resources that should have been applied to quality improvements. The list goes on…and on, yet you never read about the irresponsible WASTE.😡

The bloat across the company is increasingly obvious. Their model: They continue to cut the actual MEAT from what SHOULD have remained (and evolved) as a critical product , while adding high cost organic greens to keep the APPEARANCE of a spectacular sandwich. Eventually, they will smash it in a press, call it a Panini… when that won’t sell, they’ll drizzle it in some high cost reduction sauce, cut it in to bite size chunks, and call it an appetizer. Finally, they will sell the product to McDonalds,.

"The problem with IBM..."

Aside from all its other issues, IBM has a basic structural problem that they have been trying to fix ever since the first RA began all those years ago. That problem is that they employ too many people in relation to the total value that IBM provides to its customers. Rather than operate in a "low cost, lean and mean" mode like other companies in the IT industry, IBM is "high cost with lots of expensive people".

As a result, IBM is competitive in only one market (mainframes), with a shrinking customer base (banks and large companies with lots of money). They have tried to compete in other LOB, but as noted in other posts they'd rather unload a LOB for the cash than to make it competitive. It's a GD shame, really...those LOB made some really fine stuff.

" For instance, IBM generated $105 billion in sales in 2012, but this figure fell to $65.5 billion in 2022"

That means sh-t... IBM has been selling assets (revenues) right and left since that time (2012 and before). In 2014, it sold its X server business to Lenovo... there goes a good chunk of revenues. The same year IBM sold microelectronics manufacturing unit, here goes another chunk of revenues.

The problem with IBM is that it does not know how to make a business (or unit) profitable. When that unit is not profitable, it just gets rid of it. That tells you everything you need to know about IBM's management... a bunch of total losers with no vision.

[Complete article quoted below].

By: Zen Analyst
Apr. 13, 2023 11:15 PM ET

Summary

IBM's competitive advantage is eroding as cloud computing and open-source software make it easier for customers to switch from its offerings.
The company's financial performance has been lackluster in recent years, with declining revenues and earnings per share.
IBM faces numerous risks, including increased competition in outsourcing, the decline of its mainframe business, and the need to monetize ongoing development projects.

IBM (NYSE:IBM) has long been a dominant player in the global IT services landscape, but the rapid transition to cloud computing and the rise of open-source software are chipping away at the company's competitive advantage. In this article, we'll examine the key factors contributing to IBM's diminishing position, including the erosion of customer switching costs, increased competition, and the integration of Red Hat. Our analysis of IBM's financial performance and valuation indicates that the company's current multiple may be unjustified, given the deteriorating macroeconomic conditions and IBM's history of declining revenues.

Business Analysis

IBM, known as Big Blue, has long held a prominent position in the global IT services landscape, with a diverse range of offerings including mainframes, public cloud, data management systems, middleware, and integration software. Despite its efforts to refresh these offerings, we believe that IBM's competitive advantage is deteriorating as the cloud transition continues to chip away at customer switching costs.

The rise of the cloud and open-source software has made a mix-and-match IT infrastructure increasingly possible. While loyal IBM enterprise customers, particularly those using mainframes, may not be at immediate risk, we believe that this trend will continue to impact other aspects of IBM's business. Clients may gradually reduce their reliance on IBM offerings as competitors offer more attractive alternatives that lower the cost of switching from IBM products. Fortunately for IBM, its enterprise customers are particularly sticky, especially in regulated industries, which means that any change will likely be gradual.

One of the key factors contributing to IBM's competitive advantage is the interconnectedness of its offerings, which span IT consulting, outsourcing, hardware, software, and cloud services. Many of these offerings are interconnected, primarily through IBM's consulting business. However, we believe that IBM's consulting business is not sticky enough to prevent customers from shifting to the cloud. In our opinion, IBM lags behind competitors such as Amazon AWS, Microsoft Azure, and Google Cloud, which have gained ground by offering superior customer service, developing a robust list of partnerships, and providing a broader range of services.

IBM's cloud business is also undergoing a negative trend as the company becomes more cloud agnostic in its offerings like Watson or Cloud Paks platforms, which are now compatible with its public cloud competitors. This increased flexibility in software offerings further erodes the cost of moving from IBM Cloud. Meanwhile, the mainframe business, a stable segment for IBM, is unlikely to experience significant growth due to the high costs associated with mainframes.

Another challenge IBM faces is the integration of Red Hat, a relatively small portion of IBM's overall business. With cloud providers such as Amazon offering their own fully supported Linux versions, we believe that Red Hat's competitive advantage is under threat. We also anticipate that other cloud providers, like Microsoft Azure, will eventually develop their own supported Linux versions, further challenging Red Hat's position.

Financial & Valuation

Analyzing IBM's financials is indeed challenging due to the company's numerous acquisitions and divestitures over the years, as well as its accounting policy. Despite this complexity, a closer examination of the company's financial results reveals a lackluster performance in recent years. For instance, IBM generated $105 billion in sales in 2012, but this figure fell to $65.5 billion in 2022. Market consensus predicts a 3.7% sales growth in the coming year, which appears aggressive given the worsening macroeconomic environment and the company's history of declining revenues.

IBM's adjusted earnings per share [EPS] also show a downward trend, falling from $14.57 in 2012 to $9.13 in 2022. The company's GAAP EPS for 2022 was a mere $1.80. It is worth noting that IBM's adjusted EPS has consistently exceeded its GAAP EPS every year since at least 2012. This is unusual, as the primary purpose of adjusting EPS figures is to provide investors with a clearer picture of the company's true underlying earnings rather than inflating the headline EPS number. The 2023 consensus estimates a 3.7% increase in earnings per share to $9.46, but we are skeptical that this growth is achievable, given the company's track record.

IBM is expected to end 2023 with $35 billion in net debt, which is substantial but lower than the $42 billion of net debt reported at the end of the previous year. Despite the company's lackluster financial performance, the stock is trading towards the higher end of its five-year range at 13.3 times consensus next 12 months EPS. The stock's discount to the S&P 500 is also at a five-year low, with a 27% discount, in contrast to the 50% discount observed in late 2020 and early 2021.

Considering the deteriorating macroeconomic conditions, IBM's poor financial performance, and its relatively high valuation, we believe that the company's current multiple is unjustified.

Risks

In our analysis, we find several risks associated with owning IBM shares. One of the primary concerns is the company's outsourcing business, which appears to be facing increasing competition from cloud service providers offering more advanced technological capabilities and higher quality servicing. As customers become more aware of these alternatives, IBM's outsourcing business could suffer.

The shift to cloud computing could also accelerate the decline of IBM's mainframe business, which has been declining low single digits per year over the product refresh cycle. Our research indicates that as the market continues to evolve, it is likely that IBM's mainframe business will struggle to maintain its relevance, leading to further erosion of revenue in this segment. In addition, the emergence of more versatile and cost-effective alternatives may further exacerbate the decline, making it increasingly difficult for IBM to regain market share in this area.

Another area of concern is IBM's ability to monetize its ongoing development projects. We believe that bulls are too optimistic about the growth opportunities of IBM's various science projects. While the company is investing in quantum computing, these machines are not yet commercially viable. Even when they become available, we believe that the market for such computers will be limited, catering only to a small segment of enterprises with the financial capacity to afford them. This could hamper IBM's ability to generate significant revenue from this technology. IBM is also exploring other areas, such as blockchain services, which offer more upside and create barriers to entry for new players, particularly in the shipping industry. However, we opine that the revenue potential in these areas will not be substantial enough to offset losses in the company's core businesses.

IBM is also exposed to unique risks following the failure of Silicon Valley Bank. As of December, 45 of the world's top 50 banks were running on IBM zSystems. While most of the exposure may not be discretionary in nature due to the mission-critical use cases of mainframes, there is still cause for concern. The potential fallout from this failure could lead to reputational damage and reduced trust in IBM's products and services, which could subsequently impact its relationships with other clients in the banking sector.

Lastly, IBM's consulting business is also sensitive to macroeconomic conditions, as when businesses become cautious, they tend to pull back on IT projects. In times of economic uncertainty or downturns, companies may postpone or cancel non-essential IT projects, which could negatively affect IBM's consulting revenue. This dependence on the broader economic environment adds another layer of risk to owning IBM shares, as the company may not be able to fully control its performance in this segment.

Conclusion

IBM's future prospects are increasingly uncertain as the company struggles to adapt to the changing IT landscape. The rise of cloud computing and open-source software has weakened IBM's competitive advantage, and its financial performance has been disappointing in recent years. Despite the company's efforts to innovate and explore new areas like quantum computing and blockchain services, these projects are unlikely to generate substantial revenue to offset losses in its core businesses. Additionally, IBM faces unique risks associated with the fallout from the failure of Silicon Valley Bank and the sensitivity of its consulting business to macroeconomic conditions. Given these challenges, investors should carefully consider the company's current valuation and the potential risks before taking a position in IBM.

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