Hogging the Ground Day

February 2, 2009 Timothy Prickett Morgan

It might seem a bit illogical to do any planning for the future on the mood of a giant rodent living in a small rural town on the west end of Pennsylvania, but given the experience I have had trusting the whiz kids from Harvard, Yale, and Stanford, I am beginning to think that maybe it would be a good idea for Punxsutawney Phil to be sitting in on boardroom meetings at the major financial services firms and perhaps attending Congress as a representative.

He might even be able to run a division or two at IBM, now that I think of it, and probably do as good a job figuring out the future as I do, as well as the smarties at Gartner, IDC, and Forrester Research.

February 2 is, of course, Groundhog Day, which is an American celebration of a long-standing tradition of trying to prognosticate about the future weather for the year at a point that is halfway between the winter solstice, December 21, and the spring equinox, March 21. In Europe and colonial America this was called Candlemas Day, according to this fine history of the tradition of predicting the future on this day. The solstice and equinox days can jump around depending on whether or not there is a leap year, but Groundhog Day is always February 2, as it has been since a decree in 1886 proclaimed that Punxsutawney Phil was “Seer of Seers, Sage of Sages, Prognosticator of Prognosticators, and Weather Prophet Extraordinary.”

Now there’s a title that even makes Merlin a little jealous.

I grew up in rural Sussex County, New Jersey, a place where various lines of my family have lived for hundreds of years. We lived right on the banks of the Delaware River where New York, New Jersey, and Pennsylvania came together, and my extended family was all about 30 minutes away in various directions. Looking back, I can’t believe I was lucky enough to live where I did. I had the Appalachian Trail in my front yard and the river in my backyard, and by any measure I was a hick, including country and western music–yes, my friends, we had both kinds of music, we were so rich. In fact, my father’s family was a country and western band. My Dad played steel guitar, my Grandma played rhythm guitar and sang, my Grandpa played lead guitar and also sang, my Aunt Helen and my Great Uncle Martin played accordion in turns, and eventually my Uncle George played guitar. My Aunt Edna did some accordion as well, but eventually gave that up for rosary beads, and my Uncle Sam played the tape recorder and eventually the video recorder, having a surprisingly small amount of musical talent, but enough to introduce me to The Magical Mystery Tour by the Beatles on a long trip out to Western Pennsylvania. I didn’t know it at the time, but my grandparents were having trouble making ends meet, and one of the things that Uncle Sam also played was smart with his money. And he bought his Mom a house in a rinky dink town called Beyer, which was just down the road from Punxsutawney. As a kid, I spent a lot of time going back and forth through that town, thinking about groundhogs and prognostication, and the silliness of the human condition.

I don’t get out that way as much as I ought to any more–my grandparents have passed on, but my Aunt Helen is still out there and so are a huge number of my cousins and their absolutely huge broods. But when I do get out that way, we sometimes stop and visit Phil, who during the course of the year lives in a glass-walled den, eating dog food and ice cream, in the library off the town square. And here’s the shocking bit. There are two Phils, and man, are they a lot bigger than any groundhogs I ever encountered in my youth. It is my guess that one woodchuck is Phil and the other woodchuck is Phyllis, so the honorable line of seers and sages can be kept going. But maybe there is a “don’t ask, don’t tell” policy in Punxsutawney and they are both Phil or both Phyllis. I didn’t ask, and the rodents ain’t telling. All I know is that fat and happy tend to go together when it comes to these rodents, and Phil and Phyllis look to be living pretty high on the, er, groundhog. Sure beats being shot at for eating the green beans. . . .

Since 1886, Punxsutawney Phil has come out of his hole in Gobbler’s Knob and seen his shadow 97 times, predicting another six weeks of winter; 15 times, he has not seen his shadow, foretelling the end of winter, and there are another 9 times when the good people of Punxsutawney have lost the records of what Phil did. Blame the alcohol. Perhaps Woodchuck Hard Cider? Or the mysterious Groundhog Punch that the Inner Circle who care for Phil give to him and perhaps drink a bit of to keep the rodent eternal. And according to the Inner Circle, Punxsutawney Phil is, as you might expect, 100 percent accurate in his predictions. Just like Gartner, IDC, and Forrester in the IT racket.

Predicting what IT shops will and won’t do is not as simple a matter as coming to the office early at 7:25 a.m. and seeing if you want to get back in bed or not. Economies are complex, and not the least reason of which is because they are made up of businesses and individuals all seeking to maximize their own piece of the global pie. With so much confusion in the economy, and more changes being made all the time–these layoffs, which are presumably necessary–it is even harder to make predictions. Rather than going back into our holes after seeing their shadows, a lot of companies are in shock, hunkering down to the ground like this is trench warfare.

IBM, of course, is one of the companies that is hunkering down, secretly laying off thousands of people as it simultaneously shifts jobs overseas, where IT spending is growing faster than back here in the United States and Europe. And IBM’s chairman and chief executive officer, Sam Palmisano, has been out there arguing for a stimulus package with heavy IT infrastructure components, and arguing more forcefully than I have ever seen the top IBMer do in my two decades of watching Big Blue, because IBM wants as big a piece of the $37 billion in funding that is part of the current $825 billion stimulus package that is dedicated to IT in one way or another. Getting that stimulus passed may not create the 900,000 jobs that IBM and its think tank in Washington, D.C., have argued it will for a $30 billion investment, but it sure is going to help Big Blue’s 2009 numbers. The fact that IBM is so confident about its profit forecasts in 2009 and 2010–the company says it is on track to bring $9.20 a share to the bottom line in 2009 and somewhere between $10 and $11 per share in 2010–must be due to the fact that Big Sam is pretty confident that President Obama will get the key IT parts of the stimulus package through Congress.

But even with that, the real parts of IBM’s business are tough to predict, as IBM itself admitted last week to its North American business partners, who had a big shindig to review how 2008 went (not so good in a lot of ways) and what to expect in 2009. IBM’s PartnerWorld top brass told attendees of the event (which, given the economy, was probably hosted virtually through the Internet) that all four regions of North American sales came in below revenue plan last year, and that in all areas the revenues IBM got from customers through its partner channel were 95 percent or less of the plan IBM set as 2008 kicked off. In examining channel sales by product, IBM’s Global Financing unit, Global Services group, and Software Group all hit their targets; as far as I know, no IBM division or product exceeded targets. IBM’s mainframe, Power Systems, System x servers, and storage products all came in below plan (again, at that 95 percent or lower level). No region or product came in between 95 and 100 percent of IBM’s initial goals.

This is the kind of thing that makes Big Blue cranky, and with System x sales plummeting in the third and fourth quarter of the year, you can bet there is plenty of tension and head scratching amongst System x channel partners and IBM.

The most interesting bit of the report IBM gave to its North American channel partners was its expectation for spending levels in North America in 2009. IBM’s PartnerWorld top brass cited statistics created by the IBM Market Intelligence Department, and warned partners (er, shareholders who might get their hands on this data) that the “document is not meant to be a statement of direction by IBM nor is IBM committing to any particular technology or solution.” Wink, wink, if ya know whatta mean. (That pesky Securities and Exchange Commission and its equal access rules.)

The IBM MID calculates that IT spending in North America in the three key areas where IBM does business–hardware, software, and services–came to $409 billion in 2008, with hardware spending declining 4 percent, software sales up 3 percent, and services up 3 percent. Looking ahead into 2009, the MID expects North American IT spending in these three areas to fall by 1.2 percent to $404 billion. Hardware spending is expected to decline by 9 percent this year to $30.6 billion, and even software is expected to decline by 2 percent to $57.7 billion. Services spending in North America is expected to be flat at $316 billion.

To sell into this tough environment, IBM will be integrating product launches and doing fewer of them, and also will be cutting back on the number of promotions and marketing programs for its Systems and Technology Group. It is also making enhancements to its ePricer tools to make it easier for business partners to do customer quotes. The company is also pushing all of its mid-market sales (according to this presentation, anyway) for STG products through the channel, and the forthcoming “Smart Business” Power-based i and Linux server products will eventually be key products. IBM will be doubling up benefits for System x resellers and adding incentives to partners who push Software Group products. Perhaps more importantly for partners that peddle different products from different vendors, IBM says it will “reward partner loyalty,” which presumably those who sell IBM wares exclusively will get better margins and more stuff than those who sell IBM, HP, and other products.

Will this be enough to prop up IBM’s server and software sales in a tough North American environment? Don’t ask me. Punxsutawney Phil probably has as good as an idea as I do. What I do know is that if you are an IBM platform customer and you need to add systems or capacity, there has not been so good a time to make a deal with Big Blue since it nearly went bust in the early 1990s. Provided your credit is good or, better still, if you have cash on hand to do the deal.

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