Reader Feedback on The Hundred Thousand Plus on the Four Hundred
November 1, 2010 Hi, Tim
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You have finally hit upon the future of IBM and Apple, and perhaps the belated possible salvation for IBM customers worldwide on all IBM platforms: “For years, I have been joking–well, half joking–that IBM should buy Apple. Wouldn’t it be funny if Apple, with its $51 billion cash hoard and maybe another $37 billion in its stock, took a controlling stake in IBM? Imagine the user interface and integrated database and programming tools Apple could buff up for IBM i . . . .” With the System i platform losing 25,000 customers per year and only 100,000 customers left, it is obvious to most of us when the end will come for System i in the current environment. IBM will implode shortly, and Apple or Oracle will scoop up the remains and prosper. Thanks for trying. Best Regards, –Paul Hey, Paul: That 100,000-plus number is a bit hard to swallow, no question about it. I have my doubts that IBM will implode any time soon. As the old joke about the three-legged pig that saves the family from the farmhouse fire goes, you can’t kill a pig like that all at once. There is no question that IBM, which will celebrate its 100th anniversary next year, is more interested in earnings per share and the stock grants that will be worth beaucoup d’argent if IBM meets its goals of hitting at least $20 EPS by 2015. That’s double 2009’s levels, which I suppose is great, but there are plenty of other things that could be done with the $100 billion in cash that Big Blue will throw off in the next five years. IBM’s plan, as I detailed back in May, is to use $50 billion of that on share buybacks, $20 billion of that on dividends, and $30 billion on acquisitions. I shudder to think about what could be done to advance computing with $50 billion. It boggles the mind, really. I think of how a motivated IBM sales force might be if some of that cash actually went to them and the other employees. But, IBM’s board believes in the financial engineering started by chairman Lou Gerstner in 1993 and continued by chairman Palmisano since 2000. And thus, last week it gave Palmisano permission to spend another $10 billion on the open market for IBM’s shares, adding to the $2.3 billion it already has for the prior allocation. By the way, IBM generated $12.7 billion in cash in the first nine months of 2010 and has spent $11.8 billion on stock purchases and $2.4 billion on dividends. IBM likes stock repurchases instead of dividends because it can redistribute shares and make certain employees rich. Once you give a dividend, the money is actually gone. I can think of many things that can be done with so much money–and things that might actually make IBM even more money. Like, for instance, truly modernizing the IBM i platform, renaming it OS/500 or something, and actually selling it. I am not sure IBM believes in systems innovation the way it used to. IBM is about making incremental improvements and keeping things as much the same as possible these days. And that is dangerous in a world where Apple, Google, and Amazon, among many others, are redefining what data center computing is in a way that the System/360 did in 1964, the System/38 did back in 1979, the AS/400 did in 1988, and the RS/6000 did in February 1990. That said, I remain committed to serving the AS/400 platform and its community–no matter what IBM calls it–for as long as there is one. And maybe even a little bit longer than that out of sheer habit and inertia! –TPM RELATED STORY The Hundred Thousand Plus on the Four Hundred
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