IBM is making the rounds of institutional investors in the next few weeks to make the case why its stock is undervalued, and has posted a supplemental 8K filing with the Securities and Exchange Commission this morning reaffirming its revenue and profit guidance for 2009 and 2010. You can read the presentation that Big Blue's top …
IBM will face trouble in 2010...
IBM painting a rosy outlook based on the fact that they've cut expenses like expensive employees in the states and then pushed their jobs to lower cost centers like India, VietNam, Brazil, China, etc ...
But what happens when they win a deal in the US? Do they hire a US subcontractor or do they bring in a body from overseas? (On shoring).
What does the customer think when it comes time to renew their contracts?
IBM has let the cat out of the bag and is relatively overcharging the customer. That's right. When the first outsourcing deal was done, it was based on US employee pricing metrics. Now that IBM's sub'd to offshore resources, the next time the contract is negotiated, the customer will argue that their price should drop to reflect the lower cost/skilled worker.
In short, IBM cuts margin, customers demand steeper discounts. Its a death spiral because sooner or later the margins and the quality will suffer to a point that customer looks elsewhere, willing to pay more for better service.
There's more to this, but you get the idea.
And world + dog knows
That sammie and his cronies at the top need their bone-us money.
You got that right
IBM is achieving these levels of profit by extreme internal cost-saving measures, such as cutbacks in training, travel, offshoring or outsourcing of virtually all non-sales roles, sale of property, rape and pillage of pension schemes such as recently announced in UK, and so on. The primary aim of all this appears to be to bolster executive remuneration. It can't last. Many customers are already aware of this and reducing their dependence on IBM, but unfortunately there are not too many real alternatives.
and the talent is starting to walk out the door
attrition within IBM is starting to increase as valuable (as in PBC 1's) employees are getting fed up and leaving.
Why would anyone want to stay for zero career progression, zero pay increase, zero training, below market rates, zero to buy needed hardware / software, less people doing more work, when IBM is telling the market that all is rosey. It doesn't take a genius to realise that the executive culture in IBM is rotten and completely lacking in integrity.
An illusion of success
As already mentioned, IBM is creating these "profits" by extreme cost cutting. Anyone who trusts IBM to deliver their services from its "all the eggs in one offshore basket" delivery capability is taking a huge risk with their business.
a once great company
To be honest it doesnt take a great CEO to improve profits. you can cut and cut, limit spending which in the short term obviously improves profit, but long term is the death spiral of a once great company.
Lou Gerstner - more and more you look like a great CEO.
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