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Highlights—July 12, 2014

  • Poughkeepsie Journal:

    Small business owners near IBM not optimistic. By Emily Stewart. Excerpts: It's beginning to look like a ghost town. Small business owners near the IBM East Fishkill plant say things have been slow before, but not this bad, as they — and the dwindling number of IBM workers who stop into their restaurants for lunch or a snack — wait with bated breath for news about the property on which their livelihoods rely.

    Evidence of the plant's diminished use appears in covered-up stoplights near entrances, grass or weeds growing up through cracks in parking lots visible from the road, nearby eateries that have closed and other empty spaces in commercial buildings.

    "We all depend on IBM," said Eddie Pun, owner of Oriental Kitchen, a restaurant on Route 52 near the IBM plant.

  • Seeking Alpha:

    IBM Running Out Of Easy Ways To Keep The Shareholders Satisfied. By Dana Blankenhorn. Excerpts: IBM Corp.'s move to shed its chip-making unit, probably to Global Foundries, shows it is running out of easy ways to keep the shareholders satisfied. ...

    But with the sale of its server unit to Lenovo pending, and the semiconductor unit apparently on the block, IBM is running out of areas to cut in order to maintain its stock price. ...

    There is no immediate threat to the dividend, which costs $1.11 billion each quarter to maintain. The outlay represented less than half of last quarter's $2.38 billion in profit. But its huge stock buyback program, authorized at $15 billion last fall, can't easily continue at that rate. ...

    Under CEO Ginni Rometty, IBM has been steadily increasing debt, with $34.67 billion of long-term debt listed on its books as of the end of March, against $24.72 billion a year earlier. That's 28% of its assets, higher than even the troubled Hewlett-Packard. ...

    IBM is known for taking a five-year view on technology, and while its annual "Five in Five" review touts many miracles, it gets increasingly hard for me to spot growing IBM revenue in the predictions. ...

    As a long-time tech reporter, I know that tech companies either grow or they die. IBM has failed to grow for some time, and in every niche it's entering today, it faces increased competition.

  • CRN:

    Dell Exec: Campaign To Go After IBM Business Is Working. By Tom Spring. Excerpts: Add Dell to the list of companies courting IBM partners and customers, trying to win their business ahead of IBM's sale of its x86 server division to Lenovo. Last week, Dell reported it has experienced healthy growth in the number of partners and customers that have made the switch.

    At its Dell User Forum in Hollywood, Fla., Cheryl Cook, vice president of global channel alliances at Dell, said the Round Rock, Texas-based company's campaign to woo IBM customers -- called "Don't Just Transition, Transform with Dell" -- is driving substantial new business for Dell from servers to storage to software services.

    “We have been proactive [in our] marketing and targeting of IBM customers and partners. The statistics show that overall as a result, our server business through the channel is up 30 percent,” Cook said of quarter-over-quarter growth. “When I look at the win rate that we are having against IBM with customers, we are up 3X.”

    Dell isn’t the only one trying to grab IBM customers.

    In May Hewlett-Packard set out to capitalize on what it saw as uncertainty within the IBM business partner community and launched a "Project Smart Choice" campaign -- offering IBM partners information and resources to transfer their business -- and saying the program was aimed at "rescuing" IBM partners. ...

    According to several IBM partners who asked not to be identified because they did not want to harm their relationship with IBM, Dell has made the transition of their IBM business very appealing. “Dell has been extremely receptive to work with. Their field engagement is very impressive,” said one partner that does more than $100 million in business between Dell and IBM. “The message we are hearing from our customers is they have a zero tolerance for uncertainty,” he said. The partner told CRN that he expects to double his Dell business as his IBM business shrinks to single digits.

  • Seeking Alpha:

    Lenovo Dismisses U.S. Security Concerns On IBM Buy. By Doug Young. Excerpts: A month after word first emerged that Lenovo's mega-deal to buy IBM's (IBM) low-end server business was running into political headwinds, Lenovo is coming out and directly saying it expects to close the deal by the end of the year. Some of my sources near IBM are giving a similar message, even after a top Lenovo executive said last month that the ongoing cybersecurity spat between Beijing and Washington could derail the deal. Lenovo is also saying it expects to close its separate purchase of Motorola Mobility in the same time frame, marking the first time I've ever seen anyone imply that the purchase of that company from Google might face any political headwinds.

    If anything is clear from all these mixed signals, it's that Lenovo's two latest mega purchases are facing increased scrutiny from the Committee on Foreign Investment in the US (CIFIUS), the US agency that reviews all cross-border M&A for national security issues. As to whether CIFIUS will ultimately block either of these deals, I suspect the answer is "no". Neither is particularly sensitive, though the IBM server deal could face some higher scrutiny since its servers are often used in larger IT systems.

  • The Register:

    IBM's $3bn bet on next-gen computers: Carbon nanotubes, neuro chips. Big Blue exec tells El Reg what to keep an eye on. By Jack Clark. Excerpts: IBM boffins have been given a tidy $3bn cash pile to solve a problem that lurks not too far in our future. That problem is the imminent breakdown in conventional chip operation and chip materials as we shrink transistor gates from today's 14nm process size to 10nm and 7nm. ...

    Which is why IBM announced on Wednesday that it has decided to tackle the problem by investing $3bn over the next five years in a spread of technologies designed to improve the capabilities of typical chips, better link them to other chips, and develop new computer logic architectures that depart from the standard Von Neumann design pattern.

    These investment areas include: quantum computing, neurosynaptic computing, silicon photonics, carbon nanotubes, gallium arsenide, low-power transistors and graphene. ...

    "It's difficult to say exactly what we've invested in these areas previously, but no other corporate research lab invests more in fundamental basic science than IBM, with over $6B a year spent in R&D," an IBM spokesperson told El Reg by email when we asked what previous R&D investment this injection comes on top of. ...

    While IBM is widely reported to be trying to sell its chip manufacturing division, it appears to see future profits in designing and selling standard and sci-fi-grade chips in equal measure.

  • Seeking Alpha:

    The Future Is Cloudy For Buffett's Investment In IBM. Excerpts: Financial Engineering. A lot of pundits have been critical of the steps IBM has been taking to meet the financial goal Sam Palmisano set for his successor in the CEO spot, Ginni Rommety: generating $20 per share of operating profit by 2015.

    One of the ways in which Rommety has moved the firm closer to the $20 per share goal is by reducing the number of shares outstanding using share buybacks. And while many observers, including the Oracle of Omaha, love the effect on their shares of a company buying back shares, one of the unintended consequences of their doing so is a rebalancing of a firm's capital structure.

    Issuing debt to buy back shares-what IBM is, in practice doing-means that the firm become more and more highly levered. Leverage can increase profitability during good times, but it is a double-edged sword and can injure just as surely as it can help. ...

  • New York Times:

    When Taxes and Profits Are Oceans Apart. By Gretchen Morgenson. Excerpts: Here’s a question for investors in any big United States corporation with foreign operations: Do you know what the company’s tax bill would be if it had to bring its overseas earnings home?

    The answer, alas, is that they probably don’t. That’s because most companies with large foreign earnings don’t disclose a potential tax liability associated with those earnings, even though inquiring shareholders want to know. Given the pile of foreign earnings amassed by large multinational companies in recent years, this has become a yawning disclosure gap. ...

    Last year, the nation’s top 1,000 companies reported $2.1 trillion in such earnings, a figure that has almost doubled since 2008, according to a report by Audit Analytics, a research firm in Sutton, Mass. Those foreign earnings also represented a growing percentage of the companies’ total assets, the report said: 8.7 percent last year, up from 5.8 percent in 2008.

    Accounting rules also say companies should provide investors with an estimate of how much they’d have to pay in taxes if they were to bring those earnings back home. But rule makers gave companies an out, allowing them to forgo the disclosure if they concluded that it was “not practicable” to determine a potential tax bill. ...

    It’s no surprise that most companies choose to leave investors in the dark about these potential liabilities. ...

    Other big companies that don’t disclose tax liability figures are Pfizer, with $69 billion in offshore earnings; Merck, with $57.1 billion; and IBM, with $52.3 billion.

    None of these companies’ filings provide detail about why the figure is not calculated, beyond that it isn’t practicable. Representatives for IBM and Merck did not return phone calls seeking comment. ...

    To say it’s impracticable to calculate a possible offshore tax liability seems dubious for large companies employing armies of accountants and tax staffers. And the impracticality arguments lose even more credibility given that other large and complex multinationals have no trouble making the disclosures. ...

    Here’s a hypothesis: Maybe these companies don’t want to disclose the liabilities associated with offshore earnings because they would highlight how little they are paying overseas and possibly attract unwanted scrutiny — or tax increases — from governments in these jurisdictions. ...

    But if the 2008 crisis taught us anything, it’s that large and healthy companies’ financial conditions can deteriorate quickly. As the amount of offshore earnings multiplies, it’s troubling that so few companies tally the potential tax liabilities. A result is a larger disclosure problem for investors with each passing year.

  • New York Times opinion:

    The Long Wait to See a Doctor. Excerpts: Americans are already experiencing long waits to get doctor’s appointments, and experts say the delays are bound to get worse when millions of previously uninsured Americans get health coverage under the Affordable Care Act. That is the sobering news from a new survey of wait times conducted by Merritt Hawkins, a physician staffing firm, which polled some 1,400 medical offices in 15 large metropolitan areas across the country. ...

    The findings are consistent with an international survey of 11 industrialized countries last year by the Commonwealth Fund, a foundation that analyzes health care issues. The findings punctured the illusion that our high-priced health care system, relying on private doctors, provides faster service than the national health systems in other advanced countries. When Americans got sick, 26 percent had to wait six days or longer for an appointment, better only than Canada and Norway but much worse than other countries with national health systems like Britain and the Netherlands. Patients in Britain and Switzerland also reported shorter waits to see a specialist than patients in the United States.

  • Alliance for Retired Americans Friday Alert. This week's topics include:
    • Social Security Disability Insurance Event Shines a Light on Program’s Importance
    • Alliance Cosponsors Tele-town Hall on Caregivers’ Credit with Rep. Nita Lowey
    • Growth in Medicare Spending Slows Dramatically
    • Hawaii Alliance Holds Annual Legislative Review, Honors Former President Hamai
    • Graying Prison Population Means New Health Care Costs for States
    • Fiesta Addresses AFT Retirees
New on the Alliance@IBM Site

Job Cut Reports

  • Comment 07/06/14:

    There's not much you can do about the 2015 roadmap it's to close to it's target date for them to change coarse now. It's up to you tho what happens next. It'll be interesting to see what happens in 2015 how many shareholders will sell off if IBM misses their target or creates a new roadmap of the same thing. There's a good chance their stock will nose dive in 2015. You should protect yourselves now or have an exit strategy. -whatever-

    Alliance reply: It is time to start planning on how we halt the next Roadmap.

  • Comment 07/07/14:

    As the job market has improved some of key client architects for very prominent customers are leaving IBM. Their customer knowledge and experience will be quite difficult to replace. Especially as there is no loyalty to the people in the trenches. In the Army when the sergeants stop re-enlisting, the war is lost. -weary-
  • Comment 07/07/14: An Open Letter to IBM Management:

    If you are in fact reading this, know that this is coming from a BTL selected, Ivy educated, flag-waiving IBM patriot and a manager in a profitable IBM division. Please know that we employees understand the need for IBM to remain competitive, and that, in order to do so, any company will require headcount reduction. The backlash you see here, and hear of elsewhere is not one related to monetary poverty, but one that is centralized in a different kind of poverty. A poverty of employee dignity. It is difficult for us to hold our heads high and state that we work for the best company in the world, we know it is an untruth.

    When we employees buy our IBM stock at a 5% discount through the Employee Stock Purchase Plan or at the market price in our 401ks, to hold as an investment for our families, it is hard to watch IBM executives flip the stock like day traders without a meaningful cost basis. Our executive team has sold over $43,000,000 in stock in 1H2014. Zero dollars were spent in 1H2014 acquiring the stock, unless you count option exercises. The next batch of "leaders" at IBM see this, we answer puzzled inquiries from our employees about your actions. I am not sure what to tell them, as I am unsure how securities analysts continue to view this as anything but a vote of "no confidence" by management.

    The worst part, and what will likely be identified postmortem in the halls of elite business schools for the next century, is the cause for the continued recession of top-line growth. It is caused simply by the insulation of the executive team by self-aggrandizing sycophants. They attempt to satiate our queries with hopeful colloquialisms and half hearted explanations on contrived "town-hall" calls.

    In the end, both they and you treat the average IBMer like an illiterate laborer, despite shouting to the world about our collective brilliance. You have created a culture where any given IBMer might smile to your face and shake your hand as they congratulate you for improving bottom line while they curse your ethics and your tenure here at this once fine company. Sincerely, An IBM BTL Next Gen "Leader" -IBM Patriot-

  • Comment 07/09/14:

    Do you find it curious (aka wrong) that Diane Gherson's son was awarded the Watson's scholarship? Shame on her for even allowing him to apply. -Anonymous-

    Editor's note: Diane Gherson is senior vice president, Human Resources. In this position she is responsible for IBM's global human resource practices, policies and operations, and reports to Ginni Rometty, chairman, president and chief executive officer.

  • Comment 07/09/14:

    You are a Resource and as a US IBM employee, no longer considered an asset but a liability. I highly recommend the following:
    • If you are an exempt employee, work the 40 hours per week you are paid for. No more evenings or weekends of unpaid overtime.
    • Take ALL of your earned vacation this year. Do not carry over any vacation into 2015.
    • If you are sick, stay home and recover. Do not think you are being a hero coming into work sick.
    • Hire a professional to update your resume and start looking for another job now.

    If you think for one second what you do is of vital importance to IBM, you are wrong. Executive management does not care, even if you do perform critical work. Face reality and understand that anyone in IBM can be replaced, no matter how much knowledge and expertise you have. I have seen it first hand at BTV. -truthVT-

  • Comment 07/10/14:

    Mandatory IBM Challenge. Testing from ThinkFridays. More harassment. IBMers Challenge CAMSS Privacy Statement. Information about you such as your name, employee serial number, email address, location and business unit will be used to register you for this program. This information, along with your program completion status and as permitted by local law, the number of attempts you make at completing each of the test's modules, will be recorded, and shared with your first-line manager(s) (in-country and functional managers as applicable) to assist with coaching and development discussions. This information will also be available to the program administrator, and it will be anonymized before it further shared. Any survey you elect to answer will remain anonymous. Completion of program activities will be recorded in IBM CareerSmart/Talent@IBM and credited to Think40. -Anonymous-
  • Comment 07/10/14:

    Re: "Diane Gherson's son was awarded the Watson's scholarship?" I think you mean "...a Watson scholarship..." since dozens are given each year. Back in days gone past there was more to be outraged about with nepotism. One former exec of mine got both son and daughter hired even though they did not pass muster in interviews. Not an isolated case. -Oldtimer-
  • Comment 07/11/14:

    Well said IBM Patriot. You articulate the disease state well. Best analogy I can conjure is a diagnosis of cancer. On one hand, death is lurking, on the other a cure is possible. Everyone thinks time is the mitigating factor., but success is a combination of time and disease management. IBM has time but no interest in a cure and a leadership team completely isolated from the diagnosis. Terrible to watch a great company now in hospice. -Ex-IBMer-
  • Comment 07/11/14:

    Be sure to visit the IBM global union alliance FaceBook page with pictures of worldwide IBM employees against IBM's "Roadmaps" at https://www.facebook.com/ibmglobalunionalliance. And don't forget to click the "like" button. -Alliance-
  • Comment 07/12/14:

    NY Senator Schumer Calls Ginny about East Fishkill, Buy She Ain't Talkin: Rometty, however, "was totally mum'' during a Thursday phone conversation about the future of the company's East Fishkill facility, Schumer said. New York's senior senator said he called IBM's top executive to ask about the future of the East Fishkill plant in Dutchess County, which is rumored to be for sale. "She said she didn't have anything to say on that,'' Schumer said. "Nothing imminent. I made a strong pitch that I hope you'll keep East Fishkill, keep all the jobs there. Even if you'll have to modify what the factory does.'' "She did say that these new research jobs, a large proportion, a good proportion would go to New York,'' he said. "I asked her where in New York. She said she couldn't say." -Ginny Aint Talkin-
  • Comment 07/12/14:

    Rumor is IBM and GlobalFoundries talks have hit a snag. They are NOT talking to each other anymore. IBM is pursuing PLANB. -anonymous-

IBM Retiree Issues Comments

  • Comment 07/09/14:

    A question for the group about the personal pension plan.

    I will start out w/ a comment that I am happy to be getting something vs. nothing. But after 30 years as an Engineer/PM with most weeks >50+ hours/week I wanted to make sure that pension calculations are understood.

    I am retiring in Sept with 30 years at 52. I just received the Personal Pension Plan (new plan) paperwork for review and sign-off to start the pension flow which includes the enhanced annuity.

    The single life calculation works out to approx $14k/year; I will take to 100% joint survivor option so it drops about 10%. I will take the annuity payment ASAP as the math does not work to wait.

    When I asked my Fidelity Rep to speak to an actuarial rep to walk me thru the numbers their reply was that that was not possible and that I needed to put my question in writing for Fidelity to take back to them. So ensues a back/forth rather than a frank discussion and explanation.

    My reason for wanting a walk thru is that the numbers are so abysmal when compared to most any other pension plan out there. Was expecting something closer to 1/3 salary. IBM's old plan is likely at that level, but alas I was 37 in 1999 with 15 years so I did not have a choice in old vs. new plan.

    This PP plan annuity is 14% based on 2004 5 year salary average, or 12% of 2007.

    Here is the shocker. When taking the annual amount $14K (single life) and dividing by 2080 hours (1 year) the hourly amount works out to $6.68/hour. This is less than $8/hour minimum wage. This includes the base annuity and the enhanced annuity.

    My question to the group is whether the numbers are just that bad for the Personal Pension Plan? Are there any things in the computations that could be in error on IBM's part?

    After 30 years and attainment of a 6-figure salary this seems a tragedy to the loyalty. I will obviously deal with the reality of things, but wanted to make sure that nothing is left on the table in IBM's favor. -Retirement_Bridged_in_Sept_2014-

  • Comment 07/10/14:

    To -Retirement Bridged in Sept 2014-: Your scenario is typical. Your 6-figure salary post 2007 is irrelevant. The problem is that post 2007, your PPA grew at 1% + the 1 year treasury index (which is effectively 0% right now). Your annuity of $14K/year suggests a PPA balance of $169,000. Meaning IBM added just $2,500 to your account last year. If you request details of your benefit calculation, you will find that your protected benefit calculated in 1999 is probably higher than your maximum PPA enhanced benefit. You letter will tell you the numbers. This is how IBM was able to increase EPS so dramatically, by stealing from the employees and giving it to the boys in the C Suite as options. -Use Caution Before Rolling Over PPA-
  • Comment 07/11/14:

    To -Retirement_Bridged-: I am in a similar boat that you are, regarding the "Personal Pension Plan." And yes, the numbers are that bad. The loyal have been royally screwed. Should have joined the Alliance a long time ago and stood up for ourselves. -A Pension It Isn't-
If you hire good people and treat them well, they will try to do a good job. They will stimulate one another by their vigor and example. They will set a fast pace for themselves. Then if they are well led and occasionally inspired, if they understand what the company is trying to do and know they will share in its sucess, they will contribute in a major way. The customer will get the superior service he is looking for. The result is profit to customers, employees, and to stcckholders. —Thomas J. Watson, Jr., from A Business and Its Beliefs: The Ideas That Helped Build IBM.

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