Big Blue's big email blues signal terminal decline – unless it learns to migrate itself A fun evening's entertainment pre-COVID was to find a pub near a large corporation's IT HQ, look for the customers with the haunted, desperate eyes, and ask them gently how "the migration" was going. Didn't matter which company or what migration. They're hard. They go wrong. Not all migration misery is equal. Imagine you are a …
That would mean exchanging short-term dividends for long-term growth. It would displease current investors who won't look more than a quarter into the future and are prepared to bail out if there are no dividends planned.... It doesn't matter at all to them that that sort of management might bring the company to it's knees in the long term, they'll have cashed in and be long gone by then.
Too many companies have done that. After all, the old ways, while they often work, aren't exciting and new. Especially if you can offload the costs of staff to maintain them.
We have an entire Rail industry that is apparently suffering because the rail companies, when they took over the various pieces of the infrastructure, got rid of those with the expertise required to maintain that infrastructure, often having to bring them back as 'consultants', when that equipment went wrong. Thus arguably paying far more than they would have paid had they kept the staff on site.
The old ways often aren't the best, even if they were the best way when the company started out. Requirements do change. But we are often too quick to throw out the old ways, because they aren't exciting.
There is no reason to own shares in a company that don't pay a dividend and don't plan to. It's not a matter of looking one quarter or even one year ahead; it's a matter of expecting a return on your investment. If your investment horizon is 10 years (reasonable for individuals considering equity investment), then you should be asking yourself what maximises the dividends I'm going to get over that 10-year period, not this quarter or this year. The problem is that if no dividend is being paid, there is no clear plan for paying one, and the company is undergoing upheaval, your expected return on that investment is going to be very small indeed. Many things have to go right for you to end up with anything at all.
If IBM believe that the cash being paid out as dividends is needed instead to save the company, they should put together a proposal for how they're going to use that cash instead, what kind of profit and cash flow growth those initiatives are expected to deliver, and when they intend to resume paying a dividend. The investors are free to evaluate that plan and vote with their feet.
Suppose that instead of a dividend we were talking about a rights issue. It's the same kind of thing: investors are asked whether they want to invest more in the company for some defined purpose. If the investors don't believe in the story, they shouldn't invest.
But here's the catch: IBM have an excellent credit rating and ready access to financial markets. If cash is needed so desperately that they simply must suspend dividend payments for several years (with no guarantee that they will ever resume), why is that the best course of action? Last year the corporation paid out $5.8b in dividends, and currently has over $10b in cash on hand. In addition, it's currently paying 1.1% on its bonds due 2026. With an A credit rating, the company has had no difficulty finding takers for offerings in the $1.5b range. If we imagine that it will take 5 years of heavy investment and careful management to make IBM viable again, we need to first figure out what that's going to cost, then find the best way to pay for it. The cheapest way to pay for anything is usually with cash you already have, so that $10b should be first in line. Issuing a few billion more in debt wouldn't spook creditors (they have $58b outstanding already), and it would cost 1.5% or less -- much less than the dividend yield at current equity prices. One caveat is that they kind of already did this a couple years ago, and if I were considering investing in this company I would not be terribly pleased by the debt load; however, it's clear that neither the credit ratings agencies nor the bond market are even slightly worried. We can conclude that cash on hand and very inexpensive borrowing could easily supply 3-4 years worth of dividend payments to be invested in the company's future business.
The real problem isn't coming up with cash, it's figuring out what to do with it that will make any difference. Paying $34b for Red Hat (a "growth story") hasn't done much to generate more revenue. The usual array of endless cost-cutting measures haven't increased profitability, either; they've barely kept pace with revenue declines. Clearly the problem is management, not cash availability.
I don't own IBM. If I did, I would insist that any turnaround plan include continuing to pay out the company's profits in dividends unless and until I can be convinced that the managers have a plan to invest that cash elsewhere that will result in my receiving more dividends over my 10-20 year investing horizon than I otherwise would. As of right now, I've seen nothing from IBM management to make me believe that's the case. The stock is still far too expensive; you're paying $137 for $6.53 a year in dividends. That means it'll take over 20 years just to recover my investment, more like 35-40 if inflation is factored in. There are businesses I'm confident will keep paying dividends for that long, but IBM is not among them. The "stop paying dividends!" argument is a red herring; the dividend is the reason to own the company, but to justify anything like its current price it has to be sustainable, and that means the company has to be reasonably well managed and capable of holding its own in the market. Given that the management team have failed repeatedly to achieve that, I see no reason for shareholders to give them another $6b a year to set on fire. And the fact that people like you scream for the dividend to be abolished gives me even less reason to care about the company, because it makes me even less likely to consider owning it.
In short: the company needs new management, and a plan for increasing profits. Cutting the dividend isn't the answer.
OK, so no surprise that someone who is basing their investment strategy on dividends is still holding IBM, but a decent chunk of the market already moved on and is basing their investment decision of the idea that the actual stock will will be worth more than is was when they bought it.
I'd also scratch my head at how having even a long position in IBM has much to do with a 10-20 year investment horizon. Betting on most technology companies on that long a horizon is a suckers bet. The industry moves to fast. Which is why so many have cut dividends, focus on a 3 month horizon anchored by earnings calls, and do asinine things to boost the short term stock price.
But dividends are different because, as you point out, even a generous one only ads up to a meaningful amount of cash over very long time lines. If the stock is already expensive, and the company has been in long term decline, the math doesn't add up for investors because they will lose money on the stock on a long enough time line for the dividends to matter. Under IBMs circumstances paying a dividend will do less than propping up the short term share price, and borrowing just to prop up a dividend program is insane.
Other companies are in different positions, TSMC is overinflated, but firing on all cylinders, and has been throwing dividends around enjoying it's two year engineering lead on everyone. That is where IBM was, not where it is currently.
This might be the issue which proves terminal for IBM.
I remember being told 'no-one gets sacked for buying IBM', shortly before I was made redundant. The system the company adopted was short-lived, as indeed was the company, in that form.
It reminds me of the infamous last words: "Let me show you how we used to do it."
I heard of one company that got completely bought by IBM, just to have a large contract put in place and then re-sold...
Another company's IT director said to IBM - get me onto the board of this company and I will give you a big juicy contract, which happened somehow. Nobody ever got sacked for buying IBM when IBM put them there.
When you are big enough to own your bank, have an advanced M+A department the business possibilities expand.
But when you strip out your own cash for profit you are not preparing for the future. Steve Jobs knew this and won the long term, with IBM staff now running Apple hardware. IBM laptops had a solid reputation but they weren't interested in continuing that market and this was an admission of incapability. IBM was more interested in patents than selling computers. There is much reduced cost base and IBM could afford to keep companies in court for years.
I was just thinking of this earlier.
There were regular articles that started with "Researchers at IBM's....." or "IBM research labs release ..."
It's rare nowadays to see anything new and innovative with IBM in the name.
I can remember them writing the letters IBM out in individual atoms (Silicon I think) back in the 1980's.
This is what happens when you let accountants run the show.
> I always wonder what made them join (and then stay at) IBM though
They're probably living in their own insulated shell, protected from the rest of the BS because they're the geese laying the golden eggs.
----
Except we are not seeing any Golden eggs, its seems lots of nice projects but nothing credibly ever makes it to market, always little projects that are not scalable or get shelved once they are proven but fail to be marketed effectively, but then IBM spends literally nothing on marketing bar a few adverts.
Part of the goal is to keep researchers out of the hands of competition. That's it. Keep your competitors from innovating. MS often does this as well. There is less risk with the status quo than with introducing destabilizing new products. Assuming those projects take hold. Pay people well, put them under restrictive contracts, and let them tinker with pet projects and they will stay, effectively rendering their talents as useless.
"I can remember them writing the letters IBM out in individual atoms (Silicon I think) back in the 1980's."
It was 35 xenon atoms individually placed on a nickel substrate. Very late '80s. Done by Donald Eigler and Erhard Schweizer at the IBM Almaden Research Center.
A saga of Shakespearian merit.
The level of mismanagement borders on the comical side - and yet they STILL continue on the same path. The effect on the people trying to keep customers happy is tragic. And as IBM fades into insignificance, it will be consigned to history.
"IBM wants growth"
That's pretty close to the core of the problem.
Simply running something that makes good money without too much cost should be good. It was the essence of what used to be called blue chip companies. You invested pension funds in them and they paid the pensions. It's what IBM used to be.
Now everyone wants growth. Growth can't be unlimited. Trying for perpetual growth simply results in crashes when the buffers are hit.
Nah. Not RedHat. Sendmail on one of the BSDs. Absolutely rock-solid, scales to any size, been around for yonks, etc. etc., what's not to like?
If you're more into the Linuxy side of things, put it on Slackware instead. Similar solidness, scalability, longevity, and etc.
Bit of a learning curve, yes, but once you've learned it you're pretty much done for life ... unlike pretty much every other mailserver out there, which all seem to regularly change things around at the whims of marketing for no logical reason whatsoever.
Sendmail on one of the BSDs
Ewww.. sendmail! I used to have to herd that. Then I discovered qmail..
(I don't think qmail runs on any of the BSDs which is a shame since I mostly use FreeBSD these days - with a smattering of Devuan if I have to use linux.)
"IBM has one chance of salvation"
I don't think they do. They sold off nearly every hardware product and software product, sacked all their experienced staff, they don't have anything left and this current failure proves it.
They can't even migrate their own emails from their old system that they sold off to a new one.
Why would anyone buy IBM now? (The products, the services, or the shares?)
"They can't even migrate their own emails from their old system that they sold off to a new one"
I hope you don't imagine that Notes stored email in mbox format or exchanged messages using SMTP or accessed them with IMAP. This is so much more than an email migration project. Notes and the Domino distributed database were built into every aspect of IBM's business processes. Absolutely ridiculous to design a cut-over style migration; it needed to be done in baby steps, with interworking gateways every step of the way.
Heads will roll, up to C-level I trust.
Interworking gateways would have been a good approach. For a period of time two emails systems would be running concurrently: Lotus/Verse and the new system. (Most corporate users are already accustomed to running multiple email accounts along i.e., one or more personal email accounts along with their business accounts.) Users could be provided with mailbox export /import tools to allow them at their convenience to port whatever emails /calendars/address books they wanted to preserve. For records retention purposes, those same tools could be used to extract everyone's mailboxes/mailarchives from the old system into a retention warehouse that could be used for whatever legal discovery matters might arise.
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Some interesting stuff you have written, thank you.
I walked in 2008 because I worked out that IBM's motivation was no longer aligned with my motivation.
I blame Palmisano for a toxic culture which filtered down. But you make it clear that some of it already started with Gerstner.
I also went because the "work at home" policy in the UK was toxic - I hadn't thought about it that way much until now. Clearly based on short-term expense management. I got fed up of sitting on my own and not having anyone else to check what I was doing - for sanity if nothing else.
I don't regret my departure for a second, and the vast majority of people with whom I worked, only a couple still work for IBM, agree that I did the right thing at the right time.
Back in the day our Lotus Notes sales droid defend his product by arguing that it will cost us a fortune to migrate off. That was it. That was the only product benefit. He then presented us with a licence fee for our on-prem server significantly higher than the Office 365 equivalent. Maybe IBM management should have listened to him.
It didn't take us 18 months to migrate off, and we didn't take the company down for a week either.
The weekly sales calls turned into ever ruder demands for payment. For some reason Accounts Payable never could find the invoice. Must have been stuck in the email server or something. Legal eventually persuaded us we better pay up one last time.
I'm not defending this process. It is clear that it's not gone very well, but there has been churn in the Notes space for the entire time of my most recent time with IBM.
I have been moved from one Domino instance to another about four times in the last few years, and in general, it's been pretty painless (the one before this one did have a slight hiccough when the notes specific routing information did not get changed properly - why there needs to be explicit routing in Notes itself I do not know), but once that was fixed everything worked fine.
With this latest shift, I have had slow mail for a day or two, but nothing stopped working.
But I am stubbornly wedded to the old Notes client, working in remote mode. I did not use Verse, except to try to work out what the hype was all about, and although I set up Mail@IBM, I have not really had much reason to use it, as most of the time I work, I have access to the IBM Intranet, one way or another.
I think this is the difference. Notes working in it's traditional mode seems fine. Maybe it is the other routes in that have the problem.
Now I don't really like Notes. It's dated, the UI is still set back in the 1990's or earlier, Search is a nightmare to know where in Notes it's actually searching, and the Email system is almost incidental to it's primary purpose which seems to have been forgotten about (it's actually a distributed document database system with offline remote replication, and an application framework built around the DBs. Email is just a special case of a document database).
In theory, it was supposed to stop people just attaching documents to mails, what should have been done was place the document in a database, and put pointers into the mail. Document access would be provided by the DB access rules, meaning that you had more control over the information than if copies were splattered around peoples mailboxes. But this has been forgotten.
But it was, and still is (when used like I've described) an effective tool. It's done things for years that Exchange and Office365 has only really tackled in the last decade, keeping a large often mobile workforce connected since it replaced NOSS/Profs in the late '80s. It's a tool, I use it. I don't particularly like it.
I think that there has probably been a rather panicked implementation as a result of the move from the old infrastructure, presumably because of some unintended consequence of the sale to HCL. Oh. and Cloud.
So the mail system is still broken, daily promises are not running into credible fixes, I have to phone customers to check if they have received my email or sent anything back, embarrassing is a word being used a lot and that's with diplomatic hat firmly on. Yet on leadership briefs its not even being mentioned, just the usual we must hit the Qtr target and this is the hardest ever, as it is every single Qtr according to the leadership. Yet we are marching blindly towards the edge off a cliff, the long term staff just plod on and no one looks up to realise what is coming. The basics are broken and the leadership at the top seem so disconnected from reality that they somehow think you can grow with a diminishing pool of staff and massive dependency on existing customers but little to no freedom to go after new clients. sad times to put it mildly and after constant praise for the last CEO who got promoted whilst delivering 11 straight Qtrs of decline.
Now we see the results of getting rid of expensive and knowledgeable workers with cheaper, younger people with less knowledge.
Typical Beancounter behaviour. Thintelligence.
Any tech company need workers with knowledge, because hey, knowledge is power. Not everything that go wrong can be fixed with book knowledge, you need practical knowledge, like just where to hit it, and how hard to hit it.
Now, if you'll excuse me, I'm on my way to do some percussive maintenance on a client's purdy compoota.
All the virtualization technology that Amazon and Microsoft are making big bucks off of today was invented by IBM so long ago that the patents expired before Amazon was a thing. The big cloud companies are having to vertically integrate to work around some vendors' *cough*Intel*cough* inability to deliver and to cut out other vendors who are at risk of being bought by a direct competitor. You know which company other than 3M was really good at vertical integration? Three guesses, and the first two don't count.
Gerstner had some of the right ideas; if he had been a better CEO IBM could have become what Amazon is today. Instead, they bootstrapped a competitor and sold off critical businesses to them; abandoned and then sold off many of their software lines; ditched their microelectronics fabrication capability; and so on. Even the current IBM could be doing a lot better; Intel's inability to give a shit has pushed everyone to start moving off x86_64, but IBM could and should have sold hot and cold running POWER9s where we now have wall-to-wall ARM64.
>IBM has one chance of salvation: to migrate back to engineering.
It's been, what maybe 25 years since IBM attempted innovation in engineering?
And what about their announcement, when was it, ten, fifteen years ago, that they would have no development operations in the US, only "customer-facing". Like ALL jobs aren't customer facing, when it comes right down to it.
Perhaps IBM still has strengths, I don't know, they have zero mind-share. They might be the anti-Google, do stuff that matters, do stuff that works, do stuff for customers. But that's what they've run away from.
I saw this quote from an alias named Peter Wong* who quoted: “It’s not uncommon for mainframes to process hundreds of millions of transactions on a regular day, per mainframe. It’s a very high throughput and stable system.” About two thirds of enterprise data goes through a mainframe computer. However, the speed is both an advantage and a drawback, as people try to integrate mainframe with cloud: mainframes were built to process transactions very quickly, but they were not designed to wait. “If you wait, it jams up. A hundred million transactions is nothing, but a hundred million waiting — that’s a disaster."
Reference: https://medium.com/supplyframe-hardware/its-mainframes-all-the-way-down-73de55d2884b
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