IBM: Fuddy duddy as competitive edge

IBM: Fuddy duddy as competitive edge

Summary: Updated: IBM CEO Sam Palmisano made a rare public appearance at the company's annual investor powwow and delivered a simple message: Big Blue isn't "overcaffeinated," doesn't chase fads and isn't the most exciting tech company on the block, but it does deliver the financial results. Palmisano (right) outlined the usual themes: Growth in the emerging markets, the strength of services and the annuity business model that serves Big Blue so well.

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TOPICS: Banking, IBM
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Updated: IBM CEO Sam Palmisano made a rare public appearance at the company's annual investor powwow and delivered a simple message: Big Blue isn't "overcaffeinated," doesn't chase fads and isn't the most exciting tech company on the block, but it does deliver the financial results. 

Palmisano (right) outlined the usual themes: Growth in the emerging markets, the strength of services and the annuity business model that serves Big Blue so well. But it's clear that IBM's dullness---for lack of a better world---may be its best asset. How many CEOs would make a mention of a 50 year old technology, acknowledge his gray hair and basically argue that boring is beautiful. 

To wit:

  • Palmisano acknowledged that the mainframe is 50 years old, but remains the most efficient way to compute in this market. 
  • Palmisano noted that he's not a spring chicken, in fact he said "I'm an old guy." But Palmisano carries a "been there, done that, seen this downturn before" vibe that probably makes IBM look more appealing to customers. He said: "We're not crazy kids, we're not short term oriented. not running around here dressed in fads.”
  • The IT market revolves around some basic blocks: "Analytics on the front end, preserve capital and consolidate data centers," said Palmisano. "Competitors don't have those capabilities. We're not doing commodity stuff and the things we do have value in this particular market."

Add it up and Palmisano's company is on its game. And while Palmisano’s talk was comical in spots, it’s not like IBM doesn’t innovate. That stream computing announcement was an example of commercializing the work of its resident researchers. In addition, IBM gets the Web 2.0 vibe and has revamped its DeveloperWorks site to be a community. 

Nevertheless, IBM is comfortable in its own skin, which includes a dash of being a fuddy duddy. 

Overall, IBM’s mix of businesses mean its business model almost resemble what you'd find at an insurance firm (before those fools went off guaranteeing subprime mortgages and what not). IBM doesn't have to stretch to make a quarter by selling commodity gear. The cash flow comes in like an annuity would. Half of IBM's revenue is categorized as annuity. 

Palmisano's bottom line: IBM got ahead of the market changes and has businesses that enable it to navigate a downturn. 

"We're on our model. We feel we have the financial flexibility and don't think we're over exuberant. The economics aren't great but we're doing better than others. We haven't slashed pay of our people (that's an HP dig). We haven't because we don't have to. It's the nature of the annuity-like part of our business."

Palmisano repeatedly said the economy "is what it is." And you could say the same about IBM. Big Blue isn't as exciting as something like Facebook, but that's just fine with Palmisano. He'll just take the cash flow.

Update: IBM CFO Mark Loughridge outlined IBM's 2010 roadmap. In a nutshell, IBM is sticking to its projection that it will have earnings of $9.20 a share in 2009. For 2010, Big Blue said it was on track to deliver its target of earnings of at least 2010 a share. 

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Topics: Banking, IBM

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9 comments
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  • At the expense of US Workers

    Yep, all they have had to do is fire US workers and replace them over seas. A great business model indeed. But remember, these aren't layoffs, but "resource actions".

    No Big Blue in my shop!
    6feet_
    • They're all doing the same

      It's called globalization. The great Corporate American plan for ever increasing profits, who cares about the workers, communism is basically dead, and the unions in the west are being systematically destroyed, because they hinder profits.

      Good thing capitalism won the cold war! Now we can shift American's wealth to China where people work for .50 an hour...
      GoPower
      • ROFL

        I find that funny because New Zealand has
        become a target of US hate campaigns because
        our farmers can produce products cheaper and of
        a higher quality - and WITHOUT government
        subsidies. You Americans are just sore losers
        because you can't get your act together.
        Kaiwai
    • Another xenophobic idiot

      IBM is an INTERNATIONAL company, they hire
      people from all around the world. I know in
      your place you think that the world revolves
      around the US and the only country worth
      considering is the US but IBM realise there are
      billions of potential customers and that they
      need to get closed to them to win them over.

      Get a grip mate, we're in a global
      interconnected economy - your xenophobic
      nonsense has no place in 2009. Go back to your
      protectionist communist North Korean cesspit.
      Kaiwai
  • IBM has cut workers pay

    IBM has cut pay of IT specialists and manufacturing workers. IBM has eliminated internet re-imbursement for work at home employees. The worker pays the bill now. IBM is forcing employees to move to out of state GDF's or face termination. Moving expenses are NOT paid.
    Band levels are changed so that pay raises become non-existant. IBM cut payroll by 10,000 workers this year. Palmisano is lying.
    xibmer2
    • This is Old

      IBM is a great company, IBM shouldn't be paying for home internet you are going to have anyway, they haven't cut 10000 jobs, they do pay moving expenses for people forced to find a new job, and band level changes are almost always in an upward direction. Lucky for you (and us) that you no longer have to put up with the company that you hate so much. These are not the views of IBM.
      B4ME
      • re: This is old

        You are woefully misinformed. IBM has cut 10,000 jobs. Where have you been? IBMers that work for IBM doing IBM work at home should be reimbursed for internet use. And workers being moved to GDF's are NOT re-imbursed for moving. You must work for IBM HR. Go read the stories of IBM employees at http://www.endicottalliance.org/jobcutstatusandcomments.php
        xibmer2
  • Two small corrections...

    Palmisano has NEVER seen a downturn like the one we're in now. Neither have his peers. And it's IBM's heft, not its businesses, that enable it to navigate a downturn.

    Still, I value the insight of those who have been there and done that.
    josephmartins
  • There's Services and then there's the rest

    IBM's biggest profit center right now is the Global Technical Services division. That is also where they are off-shoring jobs as fast as humanly possible. My job is in process of being GR'd, so I will likely be unemployed before the summer is out. Would IBM like to keep me? Not really ... I "earn" too much money even after the pay cut they unilaterally gave me. They can hire the 2 or 3 lower-skilled & lesser-educated third-worlders it takes to do my work and still pay less. But just so they can claim some kind of moral position, they will surely offer me a crappy job that I'd have to move to another state at my own expense to take. Like anybody can sell a house in this economy, even if I were desperate enough to stay with IBM after what they've done (which I'm not).

    IBM makes money the old fashioned way ... by being the 800 pound gorilla. Other companies offer better products or services, or products/services at better prices, but not both. Because IBM has economy of scale, they can almost always underbid or overwhelm the competition.

    Also IBM has no absolutely no respect for either customers or employees -- they lie through their teeth in every engagement: sales staff have seemingly no grasp of reality ... they make sales because they make promises that simply can't be met by any company on earth. They lie about capabilities of products, they lie about capabilities of services, and they lie about the cost of both. But the contractual fine print, which most customers either are too dumb to understand, or simply don't care about (because "if IBM was good enough for my GrandDaddy, it's good enough for me"), has enough stipulations and loopholes to ensure that IBM won't lose money even though they fail to live up to the spirit of the contract from day one.

    I am appalled that anybody can defend, let alone respect, IBM or Palmisano with these facts in plain sight.
    Gravyboat McGee