IP: Dvorak: Is IBM Toast?

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: "John F. McMullen" <observer () westnet com>
Date: Thu, 18 Jul 2002 10:26:34 -0400 (EDT)
To: johnmacsgroup () yahoogroups com
Subject: Dvorak: Is IBM Toast?

> From PC Magazine -- http://www.pcmag.com/article2/0,4149,369682,00.asp

Is IBM Toast?
by John c. Dvorak

The services business is the last refuge of the damned. Anonymous

On April Fools' Day, 1993, the IBM board of directors put Lou Gerstner in
charge of the company. Since then, IBM stock has skyrocketed, and Gerstner
pocketed millions of dollars as a thank-you. According to IBM watcher Bob
Djurdjevic of the Annex Bulletin, IBM's growth rate under Gerstner was the
worst in IBM history, at 3.2 percent, compared with the 4.3 percent growth
rate under John Akers. In retrospect, Akers was not only the better CEO,
but his vision for breaking up IBM was also the right one. Now there's no
turning back.

Although Gerstner mavens in the business press praise the great job he has
done transforming IBM into a "profitable services titan," a look under the
hood isn't so pleasant. Sure, Gerstner pumped IBM stock into the
stratosphere. Apparently that's all Wall Street cares about. But according
to Djurdjevic, "Gerstner has paid dearly for creating the illusion of
prosperity. IBM has spent $44 billion of its shareholders' money on stock
buybacks, instead of investing it in the business."

Now let's imagine what would have happened if Akers had his way and
chopped the company into pieces. He started his scheme with Lexmark in
1991, a company that is still successful. If he had continued with the
slow dissection, he would have walked into the eye of the crazy
IPO/Internet storm as it became a hurricane. This would have made
shareholders and employees rich beyond their imaginations.

Gerstner then came in with the sentimentalists who like Big Blue and
actually began to buy companies in a sellers' market. There was even talk
of somehow buying back Lexmark. This kind of thing creates nice numbers
that help prop up stock prices. But those acquisitions were laughable and
sometimes senseless. IBM bought Lotus (1995) and let it languish. It
bought Sequent (1999) and continued to downsize and marginalize the
company. There were Tivoli (1996), Unison (1997), Software Artistry
(1998), Mylex (1999), and others, until the spree ended with the recent
purchase of database vendor Informix for a cool billion, which is ironic,
since IBM invented the relational database.

Also during the Gerstner era, we saw the neglect and essential demise of
OS/2, followed by the disappearance of the Desktop OS initiative. We
recently saw IBM lose its lead in supercomputer technology to the
Japaneseafter IBM bullied its way into the business. And why didn't the
PowerPC architecture do better in the market? There was supposed to be a
standard reference platform for this chip. IBM left it to Motorola to
continue the struggle.

The old IBM was being shoved aside in favor of a more flamboyant IBM that
was hip and into services. Wall Street loved to hear about how IBM was the
number-one company in Java development. But what exactly came of that?
More recently, IBM jumped on another hot and trendy technologyLinux. IBM
thought, "Gee, let's consider Linux on a mainframe." That makes a lot of
sense for a company with genuinely powerful operating systems such as VM!
Even more weird is Linux on a supercomputer, but up goes the stock anyway.
If IBM is so high on Linux, then why doesn't the company port the Lotus
software to Linux? Curious, no? Meanwhile, its next iteration will be
e-BOD (e-Business On Demand), which amounts to more malarkey.NET, IBM
style.

The company now promotes itself as the happening Internet-savvy company
that can do no wrong. It backs this claim with humorous and slick TV ads
implying that IBM can fix all your Internet-related problems. It's a
services company now, and it better be. In the process, it has essentially
discarded its entire networking hardware division. (Imagine the IPO of
that puppy during the boom!) IBM is going to be out of the hard drive biz
soon, and PCs, too. Some 20,000 people are expected to be laid off in
piecemeal fashion, according to most reports.

This isn't your father's IBM. I'll be shocked if there is anything left
but a company much like Unisysa haven for desk jockeys. IBM may even be
bought by Unisys or maybe Microsoft. Go read about what happened to
Nabisco once Gerstner departed. What's left of it is owned by Kraft Foods,
a former competitor.

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                          John F. McMullen
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