
Ask HN: What's going on at IBM? - Riod
Company seems to be doing poorly (14 straight quarters of declining revenue) and according to markets. Would be good if someone with a grasp of how the company works could explain what&#x27;s going wrong
======
IBMGuyHere
I've been working at IBM for a couple of years now, started as a grad.

What you must be referring to is the stock price, which has dropped from 200
dollars a couple of years ago to like 120 these days.

I can't claim to understand this company, I think very few people can. There
are 300,000 employees and more teams/products/departments than you can
imagine. It's absolutely insane.

However, what I can say is the following: IBM is shifting it's strategy
completely and that would've been very difficult to do without a drop in
revenue and stock price. IBM is going from whatever it was before to a cloud-
based company. All services and products will need to have some sort of cloud
offering. I'm not sure if you can imagine what moving 300k employees worth of
work to the cloud means. IBM has existed for like 100+ years now, this
industry has not existed until a couple of years ago and, right now, all teams
must re-evaluate their work and make the steps towards making this transition
happen.

Many of the employees are stuck in their old ways, many people have been
working at IBM their whole career (20-30-40 years) and it might be hard to
adjust to so many new directives coming from the top. There's much bureaucracy
and many old ways that need to be absolutely obliterated. Also, IBM doesn't
have a great reputation for being cool or anything... almost everybody hates
Lotus Notes, as an example.

This was sort of all over the place, I didn't spend a lot of time thinking
about this. Please let me know if you have any specific questions...

~~~
Riod
Watson is quite impressive from the outside atleast. It's sort of the opposite
of the Palantir approach to unstructured data; which is to say Watson
processes and outputs the conclusions as opposed to aiding humans. Is that
getting any traction?

~~~
IBMGuyHere
I wish I knew... As I said, there are very many people working here, it's very
difficult to know much about all that. :) From what I know though, there is a
lot of funding going into it and a lot of effort, I think it's currently no. 1
on the list for the executives. It did manage to get A LOT of attention with
Jeopardy, but I haven't heard a lot of good stuff about it since. I mean, it's
definitely laying lower than you would expect given how impressive it looked
on TV.

------
dontscale
Regarding some of the Buffett posts, he has been reading the IBM annual report
for 50 years. Other major investments he owns, like Wells Fargo and BNSF, are
major IBM customers. He once said Wells Fargo's largest expense is paid out to
IBM each year.

Buffett's position is that IBM has succeeded in turnarounds throughout its
100+ year history. Also, their advantage is in the Public/Private hybrid
cloud. Buffett also believes the cloud business is not a "Winner Take All"
game.

Buffett also applauds what industry pundits have dubbed, IBM's "Financial
engineering". IBM has financed share buybacks with debt. With interest rates
and share prices at low-levels, he believes the buybacks are sound.

In my time, I remember when IBM jumped on the Linux and Java bandwagons with
great success. I think most people respect the contributions they made with
the Eclipse IDE for example.

It will be interesting to see what they do with Bluemix and AI. I still
respect them as a technology company.

~~~
LoSboccacc
Blumix is late to the game and has to put it mildly road to do
[https://status.ng.bluemix.net/](https://status.ng.bluemix.net/)

~~~
dontscale
When bluemix started out on day one, I didn't know what the heck was going on.
When I look at that list now, I'm impressed with the cohesion of the services
presented. I see bluemix, Twitter insights, weather insights, and a lot of
other services that fit into the narrative IBM has pushed through the media.
The services appear relevant, and I'd trust ibm to support and grow them
instead of using the public as its sandbox.

~~~
LoSboccacc
yeah but look at the outages, provisioning of something is broken every other
day. this has impacted my startup already multiple times, sadly.

------
contingencies
I'm surprised no comments here mention containers. These are a great example
of where IBM absolutely screwed itself. Most of the kernel features for
containers and the initial release of LXC were done on IBM's dime. The two
major developers (one focused on kernelspace, one on userspace) then left, at
least one of them for Ubuntu, I believe. I know this because I was in touch
with them and using LXC personally about 2009-2010 before the docker hype era.

As I comprehend it, the features were originally intended to allow fat
mainframes to dole out tiny resource portions for distinct jobs. As it seems
to have turned out, every CPU these days is the equivalent of a fat mainframe,
and the greater challenge is around integrating this form of rapid SOA micro-
provisioning in to developer workflow through tooling and education. I just
upgraded this few year old Macbook Pro to run Docker 1.1.0: 200MB Linux ISO +
Virtualbox + kludgey go wrapper = better solution than IBM ever provided. With
a different management culture, they could have released this in 2010, pre-
empting stable docker by 5+ years with a kernel commit history and adequate
marketing funding.

------
pdq
IBM has transitioned into an enterprise services/consulting firm over the past
15 years or so. Their game plan is to get huge $$ contracts from Fortune 50
companies and government agencies, which is a long and costly process.

This kind of business is extremely hard to scale, compared to a true software
or hardware company innovating and licensing/selling products. IBM does have a
ton of resources behind Watson, but that's still basically an enterprise
services contract sale, and not much of a cloud product.

~~~
Riod
Does it mean its core revenues are more stable? Are enterprise customers
moving away from it?

~~~
chadcmulligan
A lot of enterprise software work that I know about that IBM does are things
like SAP integration (which was a great disaster in my home land - queensland,
australia, have a google). You can see a lot of this sort of stuff moving to
the cloud and off the shelf products replacing it, there is certainly
consulting work to be had integrating products from this, but it would be easy
to argue the amount of money for these things is a lot less.

Also in the past IBM had an integrated value stack of hardware and software
they provided (AS/400 and so on), these are being replaced by commodity cloud
based servers running linux or windows. So their consulting model is being
disrupted. There's still money in it, but probably not the amount of money
they're used to, same sort of thing is happening in Oracle I'd guess.

------
stonogo
Accountants have taken over leadership roles, resulting in a corporate-wide
prioritization of earnings-per-share promises over engineering and logistics.

~~~
samstave
Blech!!

It's too bad that companies like both IBM and Yahoo! didnt do a better job in
capturing the startup market given the hoards of cash they both have.

Talk about 900 pound gorillas, they got their asses handed to them even though
they could have funded every single startup in the valley over the last ten
years and not put a dent in their reserves...

I'm curious to know why these companies with massive cash stockpiles seem to
literally just sit on them.

~~~
susan_hall
It's always been controversial whether a company should be allowed to invest
in new fields. Over the last 100 years a few people have even made the
argument that it is illegal for a company to invest in a new fields. There
were some lawsuits about this in the 20th Century, though the courts always
sided with the corporations.

Still, the argument is interesting to consider. Suppose it is 1995 and
Microsoft it at the peak of its power, so you invest in Microsoft stock. Then
14 years go by. Now it is 2009. Google is rising in power. You want to get
your money out of Microsoft, so you can invest it in Google. Does Microsoft
have a legal obligation to give you all that it can? Or can Microsoft create
Bing? Microsoft then creates Bing and loses more than $1 billion on it. You
feel frustrated. Microsoft could have given that money to its shareholders, so
you would have more money to invest in Google. But instead the money was
wasted on Bing.

On the more general level, the question is, when one industry is in decline,
and another industry is rising, who is responsible for shifting capital from
the dying industry to the growing industry? Should individual investors do it,
or should corporations do it?

You could argue that IBM is following the philosophy that all money should be
given to the shareholders, so that the shareholders can reinvest the money
wherever they feel best.

~~~
samstave
This isnt what I asked at all.

If MSFT has BILLIONS in the bank - why do they literally sit on the money
instead of investing heavily in GOOG when GOOG is born?

I am not saying a company should give the money they have in the bank back to
their shareholders to invest - I am saying why dont they actively invest in
startups VERY AGGRESSIVELY as opposed to sitting on the money entirely.

Also, I am literally only talking about one industry - tech - so I am
expecting that those that are in tech beget tech startups....

~~~
dilemma
Because your question depends on MSFT being able to see into the future.

Second, if they did know that the Google business model would be successful
they could just have copied it to out-google Google.

~~~
graeham
Surely this is what Bing was attempted to be

------
mathnode
From my lowly developer point of view.

Power may be a bit quicker than Intel, but it's unfamiliar to many. Nvidia is
breaking new ground, it's sexy, accessible, and cheaper.

On the software side it's a similar story. Why use their unknown proprietary
cloud stuff when I can just make use of the plethora python/julia/clojure/R
stuff? AWS is fancy and ever expanding, Softlayer is a PITA.

IBM biz news
[http://finance.yahoo.com/q/h?s=ibm](http://finance.yahoo.com/q/h?s=ibm)

~~~
Riod
AWS does cater to enterprise customers, but do they have the same one point of
contact style service that IBM has historically provided?

~~~
samstave
In my experience, yes.

The support I have received fromAWS has been literally stellar over anyone
I've ever worked with.

Even now, my previous rep got promoted and moved on from account mgmt but if I
send him a one-off question he gets it answered and taken care of immediately.

I have literally out of hundreds of calls and meetings with aws been
disappointed with one call. That was when I accidentally changed my root
account email address and I couldn't recall which email I had set it to, so I
clicked the "contact customer service" link from the forgot password page and
it connected me with the "Amazon.com" (shopping) customer service agent who
apparently had no fucking clue what aws was.

------
graycat
IBM has long seen itself not as a computer or electronics company but as a
marketing company. Their approach to marketing is to have salesmen in branch
offices selling to businesses. Long they sold _business machines_ for routine
business record keeping.

They are still trying to sell, sell something, via those branch offices to
those businesses but they have run out of things to sell. And the sales
culture is not good at thinking of good, new products/services to sell.

------
woodcroft
Robert Cringley has a recent book about the decline of IBM -
[http://www.cringely.com/2014/06/04/decline-fall-
ibm/](http://www.cringely.com/2014/06/04/decline-fall-ibm/) \- I found it
pretty interesting. His thesis is that IBM's management has consistently
goosed short-term profits by making cuts that hurt it long term. It off-shored
technical work, under-invested in quality, tooling and automation, laid off
older more experienced workers, etc. I don't have any first hand of experience
of IBM, so I cannot vouch for how true Cringley's story is.

~~~
nowarninglabel
The problem with anything Cringeley writes is it is tainted by his baseless
past claims that IBM will be laying off most of its workforce. He has been
wrong every time. He'd be more interesting to read if he wasn't trying to act
as some Nostradamus to IBM who keeps repainting the IBM death portrait each
time his predictions don't turn into reality.

------
minimaxir
Define "doing poorly".

IBM is down 17% percent in the last 6 months.
([https://www.google.com/finance?q=ibm](https://www.google.com/finance?q=ibm))
As far as tech stocks go, that's not crisis-mode.

As far as newsworthyness, Watson and Bluemix have been making the press
rounds.

~~~
Riod
Since its March 2013 high. Their revenues have been decreasing for 14 straight
quarters

------
orionblastar
IBM has to change their business plan and focus on new technology.

When the IBM PC was made it started the PC Era that became the Post-Mainframe
era. When mobile devices took off it became the Post-PC era and IBM had to
sell its PC and Server lines and focus on services.

Now even if it is the Post-PC era PCs are still being used. IBM had to get rid
of OS/2 and migrate to GNU/Linux.

Right now it is also the Cloud-Era and IBM has to work on Cloud technology.

When a company shifts technology like that it takes a while to find a way to
turn a profit.

Apple went to the mobile technology market and it took off like a rocket. IBM
had the Simon Smart Phone in the 1990s but couldn't market it.

IBM has a lot of technical debt in maintaining Mainframes and Minicomputers
that are still in use. The Lotus products also are outdated and they tried to
use OpenOffice.Org to make Lotus Symphony and it didn't take off.

IBM Opened up its Power technology:
[http://openpowerfoundation.org/](http://openpowerfoundation.org/)

A lot of things have happened to technology that IBM suffered from losing
money because the technology became outdated. IBM has to invent new technology
to replace it.

IBM is focusing on services and the cloud right now. Sort of moving away from
hardware because it is hard to earn money from hardware and moving to software
and services instead.

Everything I used to know about IBM has changed, IBM has to reinvent
themselves. The technology and markets have changed and IBM has to adapt.

------
jhallenworld
One interesting thing is that Alliance@IBM- the organization that has been
trying to unionize the company is giving up. I assume that the interested
workers are now at Lenovo.

[http://www.computerworld.com/article/3019552/it-
industry/ibm...](http://www.computerworld.com/article/3019552/it-industry/ibm-
union-calls-it-quits.html)

Maybe they should focus on unionizing Amazon.

------
Afforess
IBM is suffering the fate of OPEC countries, except with technology. IBM
wasn't diversified. (Sure, IBM has lots of products, but it usually sold
licenses to all these products in large bundles, rarely did anyone buy just
DB2, rather, agreements purchased entire ecosystem of IBM software/hardware).
IBM was built on a single golden goose "massive multi-million dollar
agreements with Fortune 500 CTO's for thousands of licenses of IBM
hardware/software". IBM solved big problems with big, expensive solutions.
Nowadays, developers regularly make the purchasing decisions, not upper-
management, so FOSS or Freemium products win out over expensive IBM software
licenses. IBM hardware is largely dying out because the Cloud and x86 won the
architecture wars and no one wants to develop for PowerPC or AIX. So the
legacy IBM is dying on the table.

IBM is losing its old accounts and old business agreements faster than it can
generate new revenue with Softlayer/Bluemix/Watson. IBM makes 4.5B from Cloud
revenue. In contrast, total revenue in 2015 was 81.7B. So IBM revenue is going
to be a bloodbath until Cloud revenue can catch up. Unfortunately, Cloud is a
razor thin margin business, where Amazon, Microsoft, and Google are willing to
sell at, or below cost to gain marketshare, which will likely continue to hurt
IBM's cloud revenue at a time it needs it most. IBM is the underdog here, so
it can not bring any of the other cloud giants to the table and make them end
the price wars, so IBM cloud revenue is likely to remain anemic.

IBM also suffers from a number of management mistakes. IBM is way behind on
automation and lacks the talent, so they've had to make acquisitions and
"strategic partnerships" to buy it. IBM previously tried to outsource as much
software and operations to China or India, and the unskilled labor available
in those countries simply don't have the skill sets to do devops or any sort
of basic automation. So you've got datacenters where people still ssh into
each box and run commands by hand thousands of times because the skill level
isn't there. But hey, a few quarters of lower labor expenses in exchange for
long term growth is a great deal when you can just parachute out.

Other mistakes IBM has made includes massive buildup of debt and stock
buybacks to inflate the stock price. As bad as the stock looks now, just
consider how bad it would be if IBM hadn't spent 8B+ buying back stock. These
buybacks have largely been financed by new corporate debt. IBM's market cap is
nearly 40% less than only a few years ago. These buybacks hide a lot of the
stock price damage (the stock would be worth about $75 instead of ~$130). In
addition, buybacks are essentially returning money from the corporation to the
shareholders, unwinding the assets. This means IBM management has no plans
which could return a higher yield to investors than simply handing back their
money -- not great for investor confidence or long term future for IBM.

Source: Employee.

~~~
peteretep

        > faster than it can generate new revenue with Watson
    

I evaluated the Watson public APIs a little while (a year?) ago, and found
them close to useless, yet the amount of hype behind the brand is intense. I
wonder what the disconnect is.

~~~
mintplant
The speech transcription API is pretty great, but that's the only one I've
dealt with in any capacity.

------
product74
IBM makes a lot of money selling ELAs (Enterprise License Agreements) to their
customers. An ELA is like buying a bundle of IBM hardware, software and
services. It's like buffet dining.

Big companies are no longer buying the buffet and are increasingly opting to
go ala carte. Or alternatively, they are negotiating IBM down on prices for
the buffet.

It's true that IBM is switching its focus to Cloud services and Watson.
However, these are just new, unproven items on the buffet menu.

------
enig_matic7
I remember Mr Buffet talking about how awesome IBM's pipeline for the next few
years is. Also, this:

[http://www.forbes.com/sites/panosmourdoukoutas/2015/11/17/wh...](http://www.forbes.com/sites/panosmourdoukoutas/2015/11/17/what-
warren-buffett-sees-in-ibm-others-are-missing/)

~~~
Afforess
Warren Buffet has often said he avoids investing in the tech sector because he
does not like to own companies he does not understand. For the life of me, I
can not fathom why he broke this cardinal rule with IBM.

~~~
tristanj
IBM has run a very aggressive stock buyback scheme for the past few years.
Even while their revenues have decreased for 14 straight quarters, they
returned $50 billion to shareholders through stock buybacks. They paid for
most of this by issuing new debt and manipulating their accounting.

Imagine what they could have accomplished if they invested this into R&D
instead.

They've given a huge amount of wealth to their shareholders at the expense of
future growth. They can't sustain this much longer.

Some charts illustrating this from 2014 -
[http://www.zerohedge.com/news/2014-04-17/great-stock-
buyback...](http://www.zerohedge.com/news/2014-04-17/great-stock-buyback-
craze-finally-ending)

And them manipulating their finances
[http://www.zerohedge.com/news/2015-04-20/ibm-reports-
worst-s...](http://www.zerohedge.com/news/2015-04-20/ibm-reports-worst-
sales-2002-eps-beats-aggressive-buybacks-cut-tax-rate)

------
tim333
According to the CEO the declining revenues are not a bug, they are a feature.
From [http://www.cnbc.com/2015/11/03/ibm-ceo-said-sometimes-
size-m...](http://www.cnbc.com/2015/11/03/ibm-ceo-said-sometimes-size-
matters.html) :

>"In my tenure, I've divested $8 billion of businesses," Rometty said. "The
point was, they weren't about the future of where we were going."

>Rometty cited an example of a recent divestiture in hardware — making
semiconductors. Now, only 10 percent of IBM is comprised of hardware.

see also their pdf on the same
[http://www.ibm.com/annualreport/2013/bin/assets/ibm_ghv_marc...](http://www.ibm.com/annualreport/2013/bin/assets/ibm_ghv_march_2014.pdf)

------
twunde
IBM is still a strong company, but they are no longer in the position where
they are market leaders in their product lines. Watson is the only new product
to catch fire, otherwise they are competing and losing to Oracle and
Microsoft. Softlayer is an alsoran. They bought cloudant instead of mongodb.
The only thing they do well is consulting and even then they are expensive.
They appear to be several years behind their competitors with little chance of
catching up.

------
jamesdelaneyie
Something not mentioned here is their 'big push' into Design Thinking. IBM
have snapped up ~14+ of the graduates from my college course (Visual
Communications, IADT, Dublin) flown them out to Austin for a 3 month starter
course and now have quiet a substantial design department here in Ireland.

More info:
[https://www.ibm.com/design/studio.shtml](https://www.ibm.com/design/studio.shtml)

------
sixhobbits
I'm surprised only one comment here mentions patents. IBM are filing patents
as fast ever, and while they're trying to get into "the cloud" like everyone
else, I get the impression that they're also still working on hardware R&D, as
well as the AI research that goes into projects such as Watson.

Also they calculate the Wimbledon serve speeds, so they've got that going for
them which is nice.

------
gaze
They're doing a bit of quantum computing research and patenting stuff left and
right and it's making everyone in the field uncomfortable.

------
proksoup
Over what time period? Like the last 2 years or longer or shorter? What
specifically is the poor being asked about?

------
crb002
IBM is failing at devops. It needs to license developer versions of DB2, MQ,
and Websphere at free so devs can containerize and spin up instances for unit
tests on a whim. It needs to advocate a liquibase type solution too.

Fortune 500 IBM software is also dying because IBM has let DBAs running
scripts by hand not version control be the source of truth.

------
enig_matic7
Wasn't there something about Warren Buffet investing in IBM?

~~~
tim333
He'd invested $13bn in IBM stock as of his last shareholders letter - his
largest stock position by cost.

------
GBSthrowaway
I joined IBM Global Business Services (IBM's consulting division) in London a
couple of years ago.

As others have said, IBM is so big that it can only really be understood as
many different companies, all with slightly different cultures. There are
plenty of people who are better qualified than me to discuss the overall
strategy and financial picture, so I won't even try.

I can, however, give a few opinions about my 2+ years in GBS.

* There is a general lack of respect for technical skills. I was hired as a "Technical Consultant" but put through the same training as the business consultant grads, which is largely about project management / presentation skills. A lot of money is spent on this training, if you ask for funding to (e.g.) attend a developer conference, you are told to forget about it. Maintaining dev skills or learning new ones is to be done in your own time or as part of "giveback", which is the IBM name for extra work done on top of your day job.

* The leadership team is utterly obsessed with maximising billable hours. While this is understandable for a services business, it is taken to ridiculous extremes. People are under such pressure to be billable that they are forced into roles that are completely unsuitable for them, rather than spend a few days waiting for the right role. Training etc gets cancelled at short notice if billable targets are not met, especially in Q4. Last year the entire GBS UK workforce were banned from taking any vacation for several weeks in November and December. A spoof email from senior management was circulated, saying "Christmas is cancelled" which gives an idea of current morale.

* The annual appraisal (PBC) system is a popularity contest. The best way to game the system is to do "giveback" (see above) work for senior people and persuade them to write nice things about you. This is all well and good, but it means that performance in your main job role is actually secondary to how much eminence you can gain by doing odd jobs for senior management. Thankfully IBM has seen the light and retired the PBC process, so I'm looking forward to seeing how well the replacement works.

* I get the feeling that nobody really understands Watson. It seems like the senior execs are under a lot of pressure to buy into the hype and sell Watson to their clients. There is a lot of hand waving about using Watson in "virtual assistant" type of use cases, but I've seen very little of any substance.

* The bureaucracy can be incredibly painful. I once had to go through multiple layers of sign-off involving people in 2 different countries over several weeks, to buy a $25 software licence (which I needed urgently for my job).

* Things are changing, slowly. The iX service line is adopting a startup-like approach on some projects. Agile is being promoted in a big way, and we now have access to modern tools like Slack and Enterprise GitHub.

I hope I don't come across as a bitter, entitled millennial. These are just my
opinions.

------
bluewashed
> 14 straight quarters of declining revenue

Yeah, but dat Earnings Per Share though... /s

