Having read those thousands of messages so you don’t have to, it is becoming clear that IBM’s recent earnings miss and share drop are being misinterpreted by IBM management, whose clearest response so far has been authorizing another $5 billion in share buybacks — just the opposite of what’s really required to save Big Blue.
So just to be perfectly clear, here is IBM’s big problem: the company is failing faster than it can be rebuilt. ...
Just as Sam Palmisano came up with a 10 year business plan to get the company to $20 EPS, IBM is doing the same thing with Cloud, selling a dream. To grow Cloud to become a major business will take IBM at least 10 years of spectacular and sustained growth. How many large companies have ever been able to sustain 25 percent annual growth for 10 years? Though some companies have done it the list doesn’t include IBM.
Ginni Rometty is trying to sell the market on the idea that IBM will not only stem its sales decline with new sector growth, the company will do so by growing faster than it has ever shown itself capable of doing. Ginni is saying she can starve and flog an injured and demoralized IBM back to market supremacy.
It won’t work.
The sad fact is that IBM is now killing GTS faster than it can grow the new businesses intended to replace GTS. ...
Reading through all those comments on IBM discussion boards — some coming for the first time from IBM directors and VPs — I saw no discussion of IBM’s actual business plan. Does anyone even know the IBM business plan? You can’t get people on the same page if the page is unpublished. ...
There are dark days ahead for IBM with very large furloughs rumored for November and December. You can’t make money without workers and you can’t cut a company to prosperity. IBM’s new rounds of stock repurchases, furloughs, and more layoffs show the company’s priority is short term shareholder value. IBM is now living quarter-to-quarter and that’s no way to run a global corporation.
Meanwhile, IBM's CEO is replacing the head of Global Technology Services, the biggest revenue driver for the tech giant as part of her on-going efforts to return IBM to revenue growth, according to The Wall Street Journal.
Citing a "notice" from Chairman and CEO Ginny Rometty posted within IBM, The Journal says Erich Clementi will be replaced as of Jan. 1 by Martin Jetter, who heads IBM's operations in Japan. According to the notice, Clementi will move to another "important senior leadership role as part of coming organization changes," The Journal reported. ...
The Economic Times of India is reporting that IBM slashed its headcount from a high of 165,000 in 2011 to 113,000. (Alliance @ IBM estimates that IBM's headcount in the U.S. is down to some 73,000 following the transfer of 2,200 or so IBMers in RTP to Lenovo as part of the recently closed $2.1 billion x86 server sale.
And more cuts are coming. Citing "people familiar with the company's plans," the newspaper says IBM plans to cut another 13,000 jobs by next year.
IBM India managing director Vanitha Narayanan, who relocated from the United States in January last year, is planning to return as part of a major organisational rejig. "IBM is looking to rationalise high cost executives assigned across the markets and bring them back to the US," a source said.
"Such executives cost anywhere between $7,00,00 and over $1 million annually, apart from local country market costs," he added. Another person familiar with the developments added that Narayanan's possible return to the US has "nothing to do with India performance, but a part of global realignment of senior resources." ...
CHEAP LABOUR NO MORE THE 'SILVER BULLET' As IBM attempts to script another turnaround in over a century of its existence, low cost software services are no more the silver bullet that helped it come out of "a near death experience" in the late nineties. With aggressive disruptors such as Amazon and Google, cloud computing is the new battlefront, threatening models that rely on low-cost labour.
And that explains the shift in IBM's priorities, company insiders said."India is important, but not critical to IBM's survival like the time when Sam Palmisano brought entire board of the company to Bangalore in 2004," said a person familiar with the changes. "Things are looking quite different from 2011 — I now see half-empty floors, paid parking slots and no free coffee at times," said an IBM employee.
The reported reduction in staff in India, although unconfirmed, is in line with changing IT-outsourcing demand and delivery models. One source claimed India's Tata Consultancy Services (TCS) is now IBM Global Service's biggest competition. ...
In a recent presentation to equity analysts IBM said it is not moving away from offshore delivery and, in fact, will be harnessing global delivery centres to make it more competitive.
“In parts of our portfolio that aren't as well differentiated, we're continuing to see price and profit pressure," said an IBM statement. "These are the areas where we'll be more aggressive on the use of global delivery centres and applying intellectual property for faster time to value for our clients and improved business results for us." ...
According to CEO at management consultancy Value Leadership Group Peter Schumacher, based on meetings with about 200 outsourcing customers around the world, IBM is losing ground to offshore-based firms.
“Pricing is one reason but, perhaps more importantly, top customers also cite IBM's arrogance and weaker partnership capabilities as key reasons. In other words, IBM is seen as lacking price competitiveness, operating flexibility and customer intimacy. These are a complex mix of interrelated challenges and overcoming these can take years to resolve,” he said.
But revenue growth has slowed from older kinds of services. In the third quarter, IBM reported that revenue from global technology services decreased 3% to $9.2 billion. Ms. Rometty pledged at the time to take steps to accelerate the company’s growth.
The common theme behind being long IBM is no more convincing and holds no more merit than simply "just because." I will admit I was long the stock about 15 months ago, but did a complete 180 a few months later after going over their financials a half dozen more times. In my opinion, the increasingly dire situation with cash flows that I detail below make IBM a popular value trap and, at best, a dead money investment going forward. ...
IBM has averaged $2.8B in annual acquisitions over the last 10 years, and it has become commonplace news when they announce an acquisition. GAAP allows IBM to capitalize the acquisition cost and their auditors to test the value annually for impairment. It essentially boosts earnings with no coinciding cost on the income statement, unless they take a write down for impairment.
The problem with this is that IBM is essentially capitalizing incremental R&D by acquiring companies instead of internally developing new services and products. IBM operates in a highly competitive, quickly changing industry, and the idea that a company they buy today will have much value in one, two, or even three years without meaningful investment is nonsensical. ...
It's Common Sense, Watson. I will leave the Big Blue believers with this fact: IBM has spent $97B to fuel growth over the last 10 years, yet they have achieved negative revenue growth. That fact alone would give me concern enough to not be a part of the next 10 years. In addition to that, the adjusted FCF issues I discussed raise enough question to simply pass on investing in IBM. As Warren Buffett says, you don't have to swing at every pitch. So, given the clear warning signs noted above, why swing at IBM?
The Center for Investigative Reporting (CIR) together with NBC Bay Area have been looking at tech immigrants to Silicon Valley—and elsewhere in the U.S.—for a year. And what they have found isn’t pretty.
The system, on the surface, doesn’t seem like a bad thing. Consulting firms (a.k.a. labor brokers, a.k.a. body shops) recruit skilled tech workers, mostly engineers and computer programmers. The firms handle the paperwork required to get these workers H-1B visas, a category reserved for those with highly specialized knowledge. Then tech companies contract with the consulting firms to use the workers. This allows the tech companies to quickly build up their work forces as needed, without having to deal with all the immigration paperwork. As stated in the NBC Bay Area report on the investigation, it’s a “flexible labor regime…placing skilled people with needy firms.” And the process, if it works properly, could smooth a path for tech workers looking to move to the U.S.—if they sign on with a consulting firm, the firm finds them a job; they don’t have to interview with multiple companies.
But beneath the surface, the investigation found, many of these arrangements have problems. By looking at court records covering 600 H-1B visa abuse cases, the investigators found that contracts are often draconian, allowing the body shops to withhold wages and force workers to pay large fees if they quit. Some hold visas hostage to enforce these contracts, or threaten lawsuits.
Others bring in workers even though no jobs await. You can’t legally get an H1-B visa unless there’s a job to fill, so body shops purport to offer engineers open positions, and the engineers hired by a body shop should collect salaries from day one. But the body shops typically don’t pay workers until they place them at companies. And the body shops stockpile, or “bench,” workers so they have them on hand when jobs come up, sometimes sticking them in guest houses and forbidding them to leave the property, the investigation determined.
Selected reader comments follow:
The real scenario is not that extreme. But it is still a problem. I do not agree at all with statements by companies claiming that they cannot find Americans with the right skill set. I know many former colleagues with excellent technical credentials who are working what ever low paid retail jobs they can find just to keep a roof over their heads.
I have been a hiring manager. I once had a specific, advanced engineering job to fill, requiring lots of RF modeling and analysis and then practical implementations of the hardware. I had little trouble finding several very qualified people. They had three things in common: great qualifications, concurrently high (but reasonable) salary expectations, and they were all Americans. But, instead, I was specifically instructed by upper management to look at people from overseas who were willing to work for the lowest possible salary.
OK...I found LOTS of such people who claimed experience, education, etc., and were willing to work for half the pay. During interviews (mostly by phone) I found them unable to answer basic technical questions, and many of them could not even communicate in a useful way in the English language.
While I appreciate their rather desperate attempts to better themselves, they are prone to apply for advanced positions for which they are not qualified. The problem is with the US managers who often will hire them anyway. This, in my opinion, is a big part of the reason why the US continues to fall farther behind in science and technology. We are hiring based on price alone, and paying no attention to actual ability. The people thus tasked to do the work often are not competent. This does no favors for anyone, in the long run.
Significantly, this drive by the country's third-largest software exporter is the latest attempt to retain employees with over five years experience as attrition level for this group is higher than Wipro's attrition rate of 17%, according to a senior executive. "How do we retain this group with (over) 5-6 years experience... If we are able to provide them masters in IT or MBA, it serves them and it helps us too," said Saurabh Govil, head (HR) at Wipro. ...
Wipro's rival, Infosys, reported an attrition rate of 19.5% in the first quarter ending June. For this reason, most companies have taken steps to quell this exodus of employees — from Wipro rewarding its top 20% of its workforce with double salary hikes to Infosys okaying promotions to over 19,000 staff in first two quarters of this fiscal year.
Pros: IBM on your CV. Flexible work location.
Advice to Senior Management: Stop pursuing customer and sales lead and take a look around at your crippling organisation! People are complacent, and management just keeps their head down and exclusively pursues sales opportunities with little regard to how their people are developing or could potentially contribute.
Pros: The paid time off is nice; as a regular employee I get 20 days. Also, the health benefits I have are decent and practically free.
Cons: I don't even know where to start with the cons of working at the COE in Rochester. Yes, IBM looks good to have on your resume but it's not worth the soul sucking torture you have to go through every day. Training is a joke; they rely on the person who had the role before you to train you in. My past two roles I've gotten because someone has been leaving IBM and they didn't really care about training me. This has left me feeling like I've been "thrown to the wolves" with both of my roles. But it's OK, because it's not like the work you do actually adds any value to IBM.
I've feel like I've gained very little work experience in the finance field.
If you do happen to take an FA job here, I hope you don't plan on growing your career here. There are very few opportunities for advancement. I guess I shouldn't say that; the Rochester COE does seem to love to do vertical promotions...you know, the type where you get more work but no extra pay.
Overall, I highly advise that you only take a job here as a very last resort if you can't get another job out of college.
Advice to Senior Management: Take training more seriously because boot camp is a joke. Also, find a way to make your employees feel like their role actually adds value to the company.
Pros: I really can't think of any pros...at some point it was working with great people...but the good ones are leaving one after the other.
Advice to Senior Management: Management needs to be replaced...need new blood like Lou Gerstner; some visionary to turn things around.
Pros: Some really smart and talented people who go way above and beyond under difficult circumstances to meet stated objectives.
Cons: Knows they have some great people so uses them until they are driven off or ground to dust. Relies too much on the name brand and past glories. Shadow of the company it used to be.
Advice to Senior Management: Stop obsessing about stock price and focus on delivering products the market wants. Listen to the customer and find out what they want, not what YOU think they SHOULD buy. Get rid of the culture the encourages in-fighting and inter department warfare. In order for my business unit to succeed then someone else has to fail. That behavior is killing your business and needs to stop.
Pros: Talented coworkers. Good customers. Some of the technology is really good. Medical benefits are OK. 401k matching is not bad. Management recently got rid of two divisions that were dead weight — System x and chip manufacturing.
Cons: Salaries have been static for years. 401k matching is paid on Dec 15th, so if you leave (either voluntarily or through resource action) before that date, you get nothing. Once or twice a year, management announces big layoffs.
Because the previous CEO made a commitment to grow earnings per share to $20 by Q4 2015(management called it Road Map 2015, IBMers called it Road Kill 2015), IBM has been cutting every corner they could to get there. This quarter, the earnings were so bad, they finally gave up on Road Kill 2015. What should have been good news (giving up that dumb promise) turned bad with another $600,000,000 reserved for more layoffs and the Board of Directors authorizing another $5 billion for stock buybacks.
So instead of investing money to grow the company, they continue borrowing money to buy back IBM stock to prop up the stock price — completely ignoring the reason IBM is not growing (hint: It's not because there is too much floating stock). Hopefully, interest rates in the US will rise again so IBM can't continue with this game (borrowing money for less than the dividend payout for the stock they repurchase) and start using the money to grow the company.
Advice to Senior Management: Need the big investors to get activist and fire the Board of Directors and get new people in there.
Pros: Great place for a new individual to gain knowledge; pays less than comparable companies in the space; benefits are really good; work from home is good and technology offered is OK.
Cons: Once a year 401k match sucks; compensation is less than market rate; lower management is used to effect the will of upper management—no real say in things.
Advice to Senior Management: Pay your people commensurately with the market: provide opportunities for training and personal growth.
Pros: IBM teammates are the best ever. There is a common professionalism that I haven't seen since.
Cons: They lay employees off strictly because of financial reasons. That's business, though. In the last 10 years, my peers and I were constantly worried about being laid off. This kind of fear does nothing to help morale.
Advice to Senior Management: Consider retraining current employees instead of laying off. It's difficult to maintain the amazing culture that IBMers share if employees are under the threat of being laid off.
Pros: Very rewarding and a great team of coworkers, great international exposure, broad business exposure and challenges with multiple lines of business, and multiple country legal requirements. Management recognition of high performance contributors.
Cons: Working in a global deployment with teams in time zones that contribute to long hours in order to support the development and test teams. Weekend work, reduced personal growth as a result of cost cutting and job eliminations.
Advice to Senior Management: Move away from financial engineering; focus on R&D and start to invent and make new products that business and customers can use. Stop selling off business units and adopt new business models. Invest in training existing employees as the industry shifts to new business models.
Pros: Great benefits, flexible schedule if you can carve out the time and are meeting all your deadlines/meetings. Pay does not reflect the time commitment. Depending on how many accounts you manage, you can be expected to work some pretty absurd hours (evenings/weekends in addition to the Mon-Fri). Great support team in place to assist in day to day. Lots of room to grow and learn. Most days bring new challenges.
Cons: Staff/customers can be demanding, strong people skills are required to build buy-in and maintain customer relationships. Can be very high stress, not recommended for people that do not handle anxiety well.
Advice to Senior Management: Buy out additional time worked/holidays or officially recognize time in lieu and allow more of this time and holidays to be carried over year to year.
Pros: If you like overtime, there is that.
Cons: Where to begin? No opportunity for advancement unless you are a recent college grad. No possibility of becoming a "regular" employee for contractors. No recognition for hard work and 48 hour work weeks. "Old boy network" hiring practices. I worked there for more than 5 years without a pay raise.
Advice to Senior Management: I can't provide advice for management, because they take a hands-off approach, and you will likely never meet your manager's boss. I could count the interactions I had with my manager on my fingers.
Pros: Impossible to get fired; good brand because nobody outside the company knows what goes on inside the company.
Cons: Zero respect for customers or employees; it's all about shareholder value. Poor pay, issues of compliance and organisational controls are given scant regard. Too many chiefs, too few quality employees at the coal face.
Advice to Senior Management: I would if I thought they'd listen or understand for that matter.
Pros: IBM is Americana as apple pie, hot dogs and the good ole green back. Lots of hard working lower level people who want to make a difference. Look nice on resume.
Cons: I sense IBM feels they are above its customers and tends to be bull headed and not listen. Has a very difficult time adapting in real time situations and tends to act as if employees are expendable or not worth the pay they honestly deserve.
IBM seemed to be very heavy with upper management all pulling from the contract making money, never on site and not known to anyone working for them who these people are and how they could help.
IBM, too big for its own good and lost that personal touch care feeling for what is best for the customer. Their short shortsightedness focuses on $$$$, not customer first. If they did, they would keep contracts not lose them.
Advice to Senior Management: Customer first; spend time with your customer to understand the real needs. Spend time appreciating those who do the REAL WORK; pay appropriately and ask "what is the dumbest thing we do here" once a Month and then commit to fixing or removing that item.
Focus on the customer and what will make them successful and remember you will reap the financial rewards for a job well done. Should have a template that will flex to the customer and adjust to their needs. Honoring and respecting the customer, thanking them for allowing YOU (IBM) to serve them, the customer.
Pros: Great people, competitive pay, deep technical resources to draw on.
Cons: In recent years, the focus became increasingly on cutting costs and doing more with less. Pressure to deliver began to override. Many jobs have been outsourced overseas, and we were often expected to compete with cheap offshore labor. From a personal standpoint, my experience was that although my best had always been at least good enough, and generally much better than that, that changed rather suddenly and I began to feel that nothing I could do would be good enough.
Pros: great place to work, great talented colleagues, no work place harassment.
Cons: poor management, low morale of most of the employees, lack of fresh induction of young talents
Advice to Senior Management: Need to take management training; need to spend more time with employees, be more direct and transparent, show interest employees' career aspirations and personal development.
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