Since his purchase, IBM has reported falling revenues. The fourth quarter of 2013 was the seventh in a row in which revenues were lower than they had been in the equivalent quarter the year before. The chief executive and other senior executives have volunteered to forego their bonuses for 2013 as a result of this poor performance. As the Lex column of the FT said recently, “IBM quarterly results practically write themselves now: dreadful revenue growth accompanied by cost controls, share buybacks and dividends that combine to make the technology legend look somewhat less bad than the top line would suggest”.
It so happens that I was looking at IBM at about the same time as Warren Buffett was accumulating his stake, but I decided to avoid it. Why?A couple of features about IBM unsettled me. One was that they had announced a “road map” to generate growth in earnings per share (EPS) to $20 by 2015, up from $11.50 in 2010. I do not like management that uses terms such as “road map” unless they are discussing driving cars. “Plan” is a perfectly good word.
I also dislike the focus on EPS. Not all earnings are created equal. Some require greater or lesser amounts of capital to generate them and not all are delivered in cash. This should come as no surprise to Mr Buffett, who identified return on capital as the primary test of company performance in his 1979 annual chairman’s letter. Much EPS growth is generated at the expense of return on capital and so destroys value.
But if the focus on EPS growth was worrying, the planned means of achieving this identified in the “road map” was even more troubling: roughly 40 per cent revenue growth, including acquisitions, 30 per cent operating leverage and 30 per cent share buybacks. ...
Moreover, although some buybacks create value for shareholders, many do not and are executed seemingly irrespective of the valuation of the shares. A company cannot create value for remaining shareholders if it pays more for the shares it buys than their intrinsic value, but many companies (and investors) are fooled by the familiar boast that buybacks are accretive to EPS. In an age where the alternative use of cash often generates little income because interest rates are close to zero, almost any alternative is accretive to EPS, but it does not necessarily create value.
I found a five-year plan for significant share buybacks particularly disturbing. How can the management possibly know whether the shares will trade sufficiently below intrinsic value to create value enhancing buyback opportunities on such a scale and so far ahead?
One other feature of IBM struck me in 2010 when my Fundsmith colleagues and I were reading the company’s 2009 annual report. We noticed that it had a $1.9bn error in its cash flow statement. We rang IBM to check that we were not misinterpreting it, and they confirmed we were correct and that we were the only people who had asked about it.
Maybe others had discovered it and didn’t bother to call, but I suspect the reality is that very few investors or analysts read annual reports and 10k filings any more. The error was corrected in the 2010 annual report and did not materially affect my view of IBM, but it certainly affected my view of those who were analysing it.
But spokesperson Doug Shelton does have words on cuts reported in Europe and India.
“IBM continues to rebalance its workforce to meet the changing requirements of its clients, and to pioneer new, high value segments of the IT industry,” he says, adding that Big Blue is positioning itself to lead in areas such as cloud, analytics and cognitive computing. And it’s those priority areas getting focus and investment. ...
IBM employs more than 400,000 people worldwide, Shelton says. Ten thousand of those used to be in Research Triangle Park, at least in 2008 when the computer services firm released its last regional headcount. Since then, IBM has not provided an RTP update. Lee Conrad, spokesperson for Alliance@IBM, the union seeking to represent Big Blue, says it’s shrinking. ...
IBM hasn’t offered specifics on either the number of jobs that were impacted in 2013 or those that will be impacted this year.
WRAL TechWire, a tech-related website, quoted IBM staffers in Bangalore as saying that “people broke down after seeing the inhuman treatment. Laptops along with the cases were confiscated, so several employees were seen crying and exiting building carrying and balancing their personal belongings with their two hands.” Unofficial estimates put the sacking number at around 1,000 in Bangalore alone. ...
"STG Bangalore literally turned into a slaughter house today," Lee Conrad, national coordinator for Alliance@IBM, a union-backed workers group to The Economic Times in an email. "Several employees were called to a meeting and RA'd... and they were asked to vacate premises immediately. Severance package was on an average three months basic component of salary, which is like six weeks full pay," Conrad said.
RA refers to 'resource action' that IBM's managers at various units were asked to prepare for, ahead of the job cuts, according to media reports in the US. "People broke down after seeing the inhuman treatment. Laptops along with the cases were confiscated, so several employees were seen crying and exiting building carrying and balancing their personal belongings with their two hands," according to the email. ...
Although IBM has not confirmed the layoffs sources confirmed that hundreds of IBM staffers at its Bangalore office were asked to leave suddenly. Some of them, it is said, were given just a couple of hours notice and asked to leave behind their laptops and vacate the premises pronto, said the DNA newspaper. ...
In India, IBM has a head count of over 130,000, its largest presence outside the US. ...
Currently the talk among recruitment experts is that IBM may be targeting up to 2,000 job cuts in India though nobody is confirming this figure yet. ...
The layoff count as off Thursday evening as compiled by the Alliance based on reports from workers and affiliated unions in Europe:
If IBM cuts follow a similar plan as implemented in 2013, some 13,000 layoffs across its workforce of more than 434,000 are expected. That 2013 plan led to hundreds of layoffs in North Carolina and about 3,500 across North America, based on documents and sources. IBM still employs about 9,500 people across North Carolina. ...
“Hundreds of us have left our cities and made Bangalore our home because we were employed by IBM here. IBM was such a well-reputed company and we were so proud to work here. There are several premises where IBM operates in and each has become a landmark in the city. Tell an auto rickshaw driver that some address is near the IBM building in say, Bannerghata or Hebbal, he takes us unerringly to the correct address. Our parents are also so shocked at this turn of events” said another young IBMer, who came from Kolkatta. ...
When contacted by PTI, an IBM India spokesperson said, "As reported in our recent earnings briefing, IBM continues to rebalance its workforce to meet the changing requirements of its clients and to pioneer new, high value segments of the IT industry."
Following the Karnataka high court order, the department carried out a deeper probe and noticed that IBM India had made “incorrect claims”. In its tax return for the financial year 2008-09, IBM India claimed a loss of Rs400 crore. But the income tax department found that the company suppressed an income of Rs7,288 crore in 2008-09. IBM India’s total income for 2008-09, according to the tax department, was Rs 10,866 crore (counting the suppressed component). The company claimed tax benefits u/s 10A and 10AA for 2008-09, but has consistently failed to produce records to show income from software exports to justify the exemption claim, according to the demand notice.
According to the report from Citizens for Tax Justice, IBM paid an effective corporate tax rate of 5.2 percent between 2001 and 2012. The group released its analysis after Bloomberg News published a story this month about IBM’s offshore tax strategies. ...
Bloomberg’s story reported that IBM’s tax rate fell in 12 of the past 14 years. It said IBM used a Dutch firm — IBM International Group BV — as a holding company for 40 subsidiaries with 205,000 of its worldwide employees. ...
“Congress has your taxes taken out of your paycheck before you get the money,” he said. “But multinational companies can pay their taxes decades into the future by siphoning profits out of the U.S. with accounting devices. If you consider the time value of the money, many companies actually turn a profit on their income taxes.” ...
IBM has been under fire from some labor and advocacy groups in New York for recent layoffs in the Hudson Valley and for long-term workforce downsizing over the past 20 years. At one time, the company was the largest private employer in the state.
Between 2000 and 2013, IBM received $880 million in tax breaks from state and local governments, mostly via industrial development agencies, to expand operations in New York, said the Washington-based group Good Jobs First.
For several years, IBM has been struggling with stagnating revenue, though a movement into higher margin businesses has helped to offset some of this problem. For instance, in the last quarter, revenue dropped 5% and missed street estimates by $550 million, but operating income grew 8% while EPS of $6.13 actually bested estimates. However if you look closer at the results, investors will note that the company's effective tax fell to 11.2% from last year's 25.5%. Normalizing taxes for favorable one-time items, operating income would have been $1 billion lower or about 8% lower year on year, and EPS would have fallen 3% despite significant buyback activity.
Gross margins are relatively mixed at IBM. On a GAAP basis, they were down 0.1% to 51.7%, though they were up 0.3% on a non-GAAP basis. SG&A and R&D spending are also accounting for a larger percentage of revenue, and IBM has been cutting headcount to cut expenses. For all of 2013, revenue fell 4.6%. IBM is trying to push into cloud technology and services and is betting big on Watson. It is a cloud computing system that learns from new data and has been useful in diagnosing diseases at hospitals. IBM is trying to push Watson solutions throughout the business world. The company is hoping Watson can generate $10 billion in revenue within a decade, compared to the $100 million it currently generates. ...
IBM is trying to figure out a way to grow Watson 100 fold over 10 years, which is a herculean objective. For a company that hasn't grown revenue in five years, that task may very well prove impossible. It also shows the challenge IBM's size poses. Even if it hit this target, Watson would only boost revenue by $10 billion in 2023 while the company generates over $100 billion today, meaning less than 1% annual growth. With current downward trends in IBM's revenue from existing business, IBM could very well have less revenue a decade from now than it does today even if Watson were to hit the target. To be truly successful, IBM will need to deliver three or four Watson sized successes. With less than $100 million in revenue, it looks like IBM could fail to deliver one.
It looks like IBM will continue to cut costs by reducing its headcount and utilizing other means. This is another thing the market doesn't like. If a company is in a lay-off mode, the market will assume that it is in deep trouble even if the trouble might not be as big. For years, the investors punished companies like Cisco despite strong results partly because these companies were always in a lay-off mode. IBM coupled laying-off employees periodically with acquiring a bunch of smaller companies in order to grow its revenues while cutting operating costs. This strategy resulted in limited success and the company added a lot of debt to its balance sheet. The company's insistence on a strategy with limited success also continues to scare off many investors. ...
Yes, IBM keeps buying shares back in order to boost its earnings per share figures, but, what's wrong with that? As long as the company continues with this practice, each share becomes more valuable and even if the company posts no growth in the short term, each share will represent more earnings. The chart below shows the share count of IBM during the last 30 years. Notice the sharp decline in the company's share count after 1995. There are very few companies in the market that are as aggressive as IBM when it comes to buying its shares back. I should add a word of caution though: when a company buys its shares back aggressively, it can tell us both positive and negative things. On the positive side, it can tell us that the company's management thinks that the shares are very cheap and investors should be rewarded. On the positive side, it can tell us that the management doesn't invest the company's money into organic growth but rather financial engineering. In either case, each share is getting more valuable each year because there are less shares to go around.
Manoj Saxena, the former general manager of IBM's Watson Solutions, led commercialization efforts of the company's once-gimmicky machine. Fortune has learned that the executive (and former startup founder) has left IBM to join The Entrepreneur's Fund, a Silicon Valley-based venture firm that primarily invests in early-stage enterprise software companies. Naturally, Saxena will be leading investments in so-called cognitive computing apps, especially those built on the Watson data analytics platform. ...
IBM continues to have big hopes for Watson. Just last month, the company announced it would invest more than $1 billion to create the Watson Group, dedicating 2,000 employees to commercializing the technology. Last November, it opened up its "Watson Developers Cloud," giving third parties access to its software development tools. And CEO Ginni Rometty has said the technology will usher in a new era of computing -- yes, one as big as mainframes and PCs.
But unlike platforms like Google's Android or Apple's iOS, IBM's Watson will likely take many more years to become mainstream, if it ever does. Just "teaching" Watson -- a.k.a. feeding it mountains of data -- can be costly and time-consuming. With that said, funds that focus heavily on investing in these kinds of applications should help speed things along. (Kleiner Perkins Caufield & Byers' iFund, a $100 million fund focused on investing in iPhone apps, certainly didn't hurt Apple's ecosystem when it launched back in 2008.)
Cons: Global delivery staff from third world countries are often inept and do not do their jobs, meaning that we have to do the 'heavy lifting' on their behalf. Their is a culture of fear as to who will be the next to be cut. Salaries tend to be static, even if you take more responsibility.
Advice to Senior Management: Staff have no respect for you or understanding of your plans. You 'rule' with fear.
Cons: 1) No sustainable growth strategies. Focus only on lowering cost but not on increasing value/revenue. 2) Regular layoffs resulting in poor employee morale. 3) Talented employees moving on leading to regular attrition of knowledge base and talent. 4) No exciting projects or technologies that compete with other innovative tech firms. 5) A company culture that seems to be steeped in bureaucracies and "processes" 6) Average employee is underpaid compared to similar level employees in other firms at the same locations.
Cons: In the 12 years I was at IBM, the company changed drastically. It started with little things (no more free lunches, etc.) and eventually ended with major changes (401K), which mostly affected us blue collar workers. The morale after the summer 2013 layoffs was infectious and I honestly hated going to work. I combated this by just working from home, but in the end I just saw too many people who didn't care anymore.
A lot of people had and still have the "I'm waiting for my [severance] package" mentality, which I will admit, I had for some time as well. I also saw many friends who were laid off, struggle to find jobs and that really bothered me. I spent the better part of six months studying and applying for jobs outside of IBM. I frequently encountered negative comments and stereotypes about IBMers from recruiters, HR personnel, and other engineers.
Unfortunately, regardless of your skill set there is a general pessimism towards IBMers. I think the longer your tenure at any company, the more skepticism people will have towards your skill set. Looking back I think I thought the severance package was worth waiting for mainly because I had started to believe what some managers at IBM had instilled in me: fear and self-doubt. Many times when I complained about pay, bonus money, or ratings, I got the good old "you should be happy you have a job". The last one my manager gave me was "IBM offers a lot of flexibility for you and your family".
It is not IBM's responsibility to keep you skilled, but it's usually good question to ask yourself: can this job/company help me grow professionally? I feel pretty blessed that I left and I think it was a smart move emotionally and professionally. I have encouraged friends to leave as well, but for some that just seems impossible.
Advice to Senior Management: I don't think you can right the ship, there are just too many messed up things going on there. I hope the best for all IBMers and hope that I am wrong about IBM. Good Luck IBMers.
Cons: The pay is very low. Management only stresses billable hours. If I were to take my 3 weeks of vacation I would be subject to punishment for not meeting my 95% utilization target for billable hours. You are not likely to do the job they hired you in for. My title is application developer, that is what I hired in for, but I don't do that at all and never have during my time with the company (I have been with IBM for 1 year and 1 month and I write this after I have placed my 2 week notice but still currently employed by them). Many people have been forced into testing positions who were hired as application developers.
Advice to Senior Management: Please work on the job descriptions and improve them. Consult more with your employees. The reality is many of them are looking for jobs right now and want out. Pay the employees more, put those you hired as application developers into application developer roles.
Cons: Employees are treated as commodities. No respect for the individual. Constant threat of layoffs. Salary targets are below industry average. Extremely low employee morale.
Advice to Senior Management: Get your act together before you're left with a board of directors and no employees. Unless that is your goal.
Cons: Very poor management; no one knows what you are doing. Typical "CbDers" were lucky to speak with their managers twice a year, of whom were managing 100+ individuals. Your performance is measured entirely on what you say you did at the end of the year.
To be blunt, the company was dishonest about what the CbD program is. The program marketed itself as "strategy & transformation" roles. In reality, the only projects myself or other CbDer's found themselves on were IT implementation projects, which offered little challenge.
IBM's recent marketing campaigns claim the company is involved in analytics, mobile, cloud and social media work. I saw nor heard of any real projects in these fields. These appear to be areas IBM would like to be involved in, but hasn't yet been able to figure out how to do so. It's easy to see right through their fancy marketing after working for IBM.
Cons: IBM's 2015 stock plan has resulted in cutting top technical talent. Executives are so focused on short-term earnings that they have sacrificed the future. Innovation has ground to a halt and most divisions are struggling to find the next big product. Without a major change in leadership, the company is going to sink. Top performers (top ~10%) were not given a raise two years in a row, sending a very clear message that talent can go elsewhere.
Over the last five years, here are some of the "savings" that were enacted: taking away free coffee, the "adopt a plant" initiative and removal of individual trash cans to minimize housekeeping costs, elimination of employee services and education center. Worst of all, our 401k was changed to only vest in one lump sum at the end of the year instead of per paycheck. If you leave before December, you lose anything you would have received. They will slash anything or anyone regardless of the bigger picture. It is very difficult to move internally and the employee rating system is broken.
Advice to Senior Management: Can the 2015 plan. Bring in a new CEO from the outside to clean house and focus on R&D again.
Cons: IBM is a large company and no mater what you did it did not seem to impact the company much.
Advice to Senior Management: Spinning of groups to work as almost a separate business unit gave the groups a lot of autonomy and a sense of accomplishment when success metrics were setup just for that group.
Pros: In the beginning it is a great opportunity to grow within the company. Also, in the beginning wonderful benefits for health and pension, 401k, etc.
Cons: Many benefits reduced, pensions taken away. Advancement diminished, layoffs every year, only to hire new, inexperienced employees or worse move jobs to other countries and layoff US employees after 20-30 years of experience. Excessive work hours mandatory, averaging 60 or more hours per week with no compensation for salaried employees. Mandatory travel, even when you live within 10 minutes of a site location! Mandatory travel, meant on a plane weekly, home on weekends only. Management bullied employees, forced early retirement, health risks due to excessive stress.
Advice to Senior Management: Treat employees with respect, positive reinforcement, realistic hours and work location. Allow employees to become the expert in their position, before moving them around to just fill projects with bodies and expect immediate performance. Stop threatening employees about being replaced with off shore work force. We are humans with families, not machines!
Cons: Management doesn't have a clue how to motivate. Leadership is lacking. Old guard is only concerned with keeping their job, not in advancing yours. Every time you need a support resource the finger pointing starts. Managers preside over individuals who know far more than their managers
Advice to Senior Management: Need better evaluations of old managers who aren't productive and can't mentor.
Cons: Little incentive or motivation to work hard and do well...lots of employees were successful on doing the minimum whilst others worked hard and extensive hours for little or no recognition. Lots of talk about the ability to have additional training, but no opportunity provided for this.
Advice to Senior Management: Listen to your staff and allow them creativity to develop/design something new.
Cons: There are fewer great people left - many are voluntarily leaving for more money/less stress. Decreasing staffing, increasing workload, and disconnected management can make the days very long.
Advice to Senior Management: People join companies, but they leave managers. Your line management team is overwhelmed with too many direct reports (I know of 1st lines with 40+ direct reports) and too much individual responsibility. Coaching and mentoring is suffering woefully, leading to increasing retention problems. Take action now to reduce the span of control and demonstrate that you truly value line management as professionals who develop what you state is the companies greatest asset - its people.
It happened in September, when her boss abruptly changed her job description. She went from doing payroll, which she liked, to working on her boss’s schedule, which she loathed. At another time, she might have had to grit her teeth and accept the new position because she needed the health benefits.
But with the health-care law soon to take effect, she simply resigned — and hasn’t looked back.
“It was wonderful. It was very freeing,” said Lower, 56, of Bourbon, Ind., who is now babysitting her 5-year-old granddaughter full time. With the help of federal subsidies that kicked in Jan. 1, she is paying less than $500 a month for health coverage for herself and her husband. ...
But they called the impact positive, arguing that people have for too long been stuck in jobs that are a poor fit or that they dislike, simply for the benefits. While some people may make the calculation to just work less to keep more generous benefits, many will use their time to do something more productive, such as start their own business or take care of family members, advocates of the new law say.
Termination of Employment: In the event you cease to be an employee (other than on account of death or becoming disabled as described in Section 12 of the Plan) prior to the Vesting Date(s) set in your Equity Award Agreement, all then unvested RSUs under your Award shall be canceled.
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