IBM has become a black hole that takes investor capital and wastes it on never-ending attempts to engineer a way to EPS growth, regardless of whether or not it's working. And the model's fair value calculation illustrates to me that investors have absolutely zero faith in IBM's ability to execute, because if they did, the stock would never have reached $157; it would have been bid up a long time ago. But no one trusts the numbers right now, and that's a serious problem for bulls. ...
Though I sound quite negative, I don't have anything personally against IBM; I just loathe the fact that a company's management has been focused on engineering EPS growth rather than focusing on its people and its business for so many years. The roadmaps that were to double EPS through little actual production but lots of financial games built a house of cards with IBM that has subsequently come crashing down. I honestly don't see what Buffett sees in IBM; I just see a business that is shrinking, and clueless management. And yes, I know he's the best investor of all time, but he's wrong sometimes too.
Selected reader comments follow:
Promises include: acquisitions for growth; IBM+Apple to compete with BBRY, promised free cash flow and profits.
I called IBM a sell but anticipate the stock will simply drift lower and lower, until its small units start proving themselves. With the way IBM's run, this will take a while.
Funny, IBM does not seem to have answers to those questions...yet. Not sure they will come easily...things are changing too quickly and IBM can't muster the messages quickly enough before the market changes. Fickle times.
That journey since 1995:
Organic growth requires innovation coupled with a leap of faith on a few compelling bets. There are no gamblers here that I can see. Maybe Ginny is a gambler; no evidence yet except for throwing out the 2015 Roadmap. I think it's too early to tell. She may have some good cards in her hand, but I don't see any "tells" yet and she's betting after the flop, so few cards left to play.
Lastly, employee morale is well...most of the best educated, highly motivated contributors (U.S. employees with advanced degrees loyal to their U.S. employer) have been replaced with thousands from third-world countries with third-world educations lacking global insight and strategic depth; part of the "financial engineering" — enough's been said on that.
So yes, IBM lost its way somewhere around 1/2 way through its transformation when it failed to capitalize on its new found stability to reinvest in meaningful innovation and place a few intelligent bets; but instead chose to "financially engineer" (see point 1 above) continued financial performance through M&A, stock buybacks and increasing dividends.
One area of concern for me that Tim mentioned is the morale and treatment of employees. I think layoffs have been necessary, but its the manner in which they do them and how they view the employees, which as Tim pointed out, are as "costs" rather the people. Basically, IBM management has alienated their work force. Energizing the employees and getting their buy-in needs to be part of the company transition. It appears to be completely off their radar right now.
Speaking of layoffs, I would like IBM management to focus on their bloated mid- and upper-level management layers, which have basically been ignored during the on-going annual workforce layoffs. With less workers now, there are management layers that are no longer needed.
I would also like to see a change to the IBM executive compensation. The current stock option system rewards them for short-term performance without regard to the long-term ramifications. Their viewpoint is short term. They leave IBM with cash in hand while long-term investors are holding the stock. I would like to see a system where the executives have more of a long-term vested interest in IBM.
Pros: Excellent benefits and flexibility in scheduling. The organization is adamant about supporting a diverse work force. Large customer base provides a variety of consulting opportunities. Many areas of technology to interest the most selective geek in each of us.
Cons: Pay is decent but bonuses are insulting compared to similar organizations. Many technical education opportunities provided, but personal education and tuition assistance are outright lies. I worked for IBM for 14 years and I applied for tuition assistance to get a Masters. I was always turned down because it was not "required" for my job. I went to a new organization and was approved for assistance without even being asked about my current role. Now THAT is how to treat someone who wants to improve themselves and the organization!
Advice to Senior Management: Career advancement in the technical track is not well-documented and obscure. Even managers do not know how to get someone to Distinguished Engineer from a band 9. A true career track with ALL the check blocks visible would help guide those who want more out of their careers. If raises cannot be more than 1%, and qualification for bonuses are not clearly defined, then just come out and say that you will not give these things out. That way, less people will be dissatisfied when they do not occur because they will know ahead of time it is not going to happen.
Pros: Technical competence is high; lots of skilled people that understand and perform their job very well. And, for the most part, everyone works hard and is willing to help each other.
Cons: There are far more planners, project managers, sales-people and managers than actual 'doers' — that implement the technical plans created by others; an 'inverted pyramid' organization where the majority of the effort is on requirements that cascade downward from on-high to a small number of over-worked, stressed out implementers.
Advice to Senior Management: Build teams of competence BEFORE customer commitments are made by those who will have nothing to do with the implementation, and allow those personnel to create a plan that is THEN agreed to by the customer.
Pros: The salary is competitive for new graduates, and the healthcare coverage is excellent. There are a lot of great employees at IBM that really want to help younger team members. I've had senior team members set aside time to make sure that I understood what was going on in the project, and that I was really learning something.
Cons: The CBD program is set up very poorly and delivers little value to recent graduates. The amount of paperwork that needs to be filled out for project assessments, year end reviews, and promotions is astounding and very redundant.
Advice to Senior Management: Work on the training that is offered to CBDers, and streamline some of the HR processes (year end reviews and promotions). The current training program is useless, and it is difficult to get approval for the types of training that would actually help younger employees with their project roles. The amount of paperwork that needs to be filled out for reviews and promotions is quite frankly insane, especially considering the amount of work the employees are already doing.
At the moment we cannot connect IBM devices to IBM WiFi; OTR is now looking exotic compared with a piece of garbage that is now called TRIPS; we are light years behind in the apps world and the Apple deal will not save us from the incompetent morons that push out apps that a 5-year old coded in the 90s.
Morale remains appalling — people are not going the extra yard and will not. They/we do the job and then shuffle off home and that's it.
Planet Ginni and her execs worldwide do not comprehend what a team is or how to motivate their staff. Most people are leaving for much higher jobs or hiding out in plain sight not caring whether they get the bullet or not. This company will not turn around despite the platitudes coming down the line internally.
All managers have to "blog", and 90% of them remain unread apart from the brown-nosers that "like" the post to ingratiate themselves with management.
Our code is so far behind it is not funny. Our hardware is breaking with regularity. And that is why the stock will continue to slide. It cannot and will not improve.
An puh-lease do not say "it is just as bad elsewhere" — that is the lamest argument anyone can offer. -Silver IBMer-
Fear of being laid off for being a "low performer" as a motivator apparently is not sustainable as people burn out from it.
Also the big take away is human performance in a pool of people does not fall exactly on a bell curve. You know, only x amount of 1's can be handed out and y amount of 2's etc! IBM management idiots! Is scary that you can be let go even if you are a good performer because of the bell curve performance scoring. Get union folks...stop being mentally abused by greed and inept management! -foo-
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