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I suspect that IBM fits his understanding because he views it as a services company, rather than a hardware or software company. Services he does understand.

I suspect that IBM fits his understanding because he views it as a services company, rather than a hardware or software company. Services he does understand. I think he also likes that they give most of their cash back to the shareholders. (Which makes them a value play rather than a growth play) I was still surprised by the investment though.

jalopy 10y ago
Agree on these points. Also, across the dozens of businesses fully owned by Berkshire Hathaway, he has unique insight into the tech vendors that those businesses rely on. The rumor is that he polled a significant portion of the managers of these businesses which helped to inform his decision that IBM would be around for a long, long time.
- mathattack 10y ago
  Interesting. The challenge is that tech companies can become obsolete very quickly. I don't think IBM is as sticky as he gives them credit for.
  - dgreensp 10y ago
    This is funny because IBM is the best possible example of a sticky tech company. The company was originally founded in 1911 and made punch-card-operated tabulating machines.
    - mathattack 10y ago
      Indeed, but I don't people are as locked in their services as they used to be. They've been resiliant, but it isn't like the 80s or 90s when a decision to buy IBM was a 20 year commitment. Now the decision to buy IBM is more around software and services. Outsourcing contracts have long lives, but software and implementation less so. This is where the Growth investor looks at something different than the Value investor. The growth investor says, "They're technologically irrelevant. They're still hawking Lotus Notes!" [0] The value investor says, "Their PE is 11, and they're buying back every share in sight." [1] [0] http://www-03.ibm.com/software/products/en/ibmnotes http://www-03.ibm.com/software/products/en/ibmnotes [1] http://www.google.com/finance?cid=18241 http://www.google.com/finance?cid=18241
      - ethbro 10y ago
        I'm not overly familiar with IBM Global Services, but from the contact I've had with them in the enterprise world I think you're undervaluing the stickiness substantially. For context, if I'm looking at the right numbers, IBM has ~USD$80B in revenue with ~USD$60B from services? IBM realized a while ago that the actual machines were replaceable, but the expertise needed to do integration on the scale they operate at less so. And given the poor success rate of major upgrade/integration projects, I expect "hire IBM" is still a fairly safe decision at the C/VP level. Whether legacy enterprises* are running mainframe or fail-tolerant distributed infrastructures, most of them are more than happy to throw money at someone to reliably turn the crank and keep them working. Edit Side note: Does Amazon actually not have a services org to build on top of AWS? Seems like they could create one just from IBM layoffs and start helping some of these sorts of customers migrate to AWS. *Excludes the vast majority of companies mentioned on HN
        jsprogrammer 10y ago
        Amazon has pop-up lofts (though, the one I've seen was in a very fixed looking building) where you can consult with Architects or take various technical workshops.
        soperj 10y ago
        Considering they do $60B worth of business in services, and given the poor success rate of major upgrade/integration projects, I'd say IBM is one of the culprits here. I'm a BH investor, and frankly I don't like them going into this space.
banku_brougham 10y ago
IBM is dying, http://www.cringely.com/2016/03/08/whats-happening-at-ibm/ http://www.cringely.com/2016/03/08/whats-happening-at-ibm/ I hope their Apple purchase isn't an indicator of the same.
- rdtsc 10y ago
  Yeah that guy wrote a book about how IBM is dying a few years ago and ever since then keeps writing blog posts about it. Whether it is dying or not I would not listen to him.
  - banku_brougham 10y ago
    A behemoth like IBM takes a while to die. I've read a bit about IBM. They are toast, the market for mainframes, server racks and expensive enterprise service packages is disappearing.
    - notaharvardmba 10y ago
      Except watson, patents, their financing arm, 99 year contracts with governments globally...
      - josh2600 10y ago
        ... Have you ever tried to use Watson for anything? The aspect of dying is a forward looking thought which presumes that growth has ceased within the organization and the best they can do is to maintain their current state. I think that's a fairly accurate depiction of IBM's business although the recent performance notes I've seen of the Power chipset with PG_SQL are pretty encouraging.
      - ReedJessen 10y ago
        I estimate about 60% of IBMs patents are invalid after the recent Alice v. CLS Bank decision. Just no one has call them out on it yet.
    - deleted 10y ago
deleted 10y ago
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jalopy 10y ago

Agree on these points. Also, across the dozens of businesses fully owned by Berkshire Hathaway, he has unique insight into the tech vendors that those businesses rely on. The rumor is that he polled a significant portion of the managers of these businesses which helped to inform his decision that IBM would be around for a long, long time.

mathattack 10y ago
Interesting. The challenge is that tech companies can become obsolete very quickly. I don't think IBM is as sticky as he gives them credit for.
- dgreensp 10y ago
  This is funny because IBM is the best possible example of a sticky tech company. The company was originally founded in 1911 and made punch-card-operated tabulating machines.
  - mathattack 10y ago
    Indeed, but I don't people are as locked in their services as they used to be. They've been resiliant, but it isn't like the 80s or 90s when a decision to buy IBM was a 20 year commitment. Now the decision to buy IBM is more around software and services. Outsourcing contracts have long lives, but software and implementation less so. This is where the Growth investor looks at something different than the Value investor. The growth investor says, "They're technologically irrelevant. They're still hawking Lotus Notes!" [0] The value investor says, "Their PE is 11, and they're buying back every share in sight." [1] [0] http://www-03.ibm.com/software/products/en/ibmnotes http://www-03.ibm.com/software/products/en/ibmnotes [1] http://www.google.com/finance?cid=18241 http://www.google.com/finance?cid=18241
    - ethbro 10y ago
      I'm not overly familiar with IBM Global Services, but from the contact I've had with them in the enterprise world I think you're undervaluing the stickiness substantially. For context, if I'm looking at the right numbers, IBM has ~USD$80B in revenue with ~USD$60B from services? IBM realized a while ago that the actual machines were replaceable, but the expertise needed to do integration on the scale they operate at less so. And given the poor success rate of major upgrade/integration projects, I expect "hire IBM" is still a fairly safe decision at the C/VP level. Whether legacy enterprises* are running mainframe or fail-tolerant distributed infrastructures, most of them are more than happy to throw money at someone to reliably turn the crank and keep them working. Edit Side note: Does Amazon actually not have a services org to build on top of AWS? Seems like they could create one just from IBM layoffs and start helping some of these sorts of customers migrate to AWS. *Excludes the vast majority of companies mentioned on HN
      - jsprogrammer 10y ago
        Amazon has pop-up lofts (though, the one I've seen was in a very fixed looking building) where you can consult with Architects or take various technical workshops.
      - soperj 10y ago
        Considering they do $60B worth of business in services, and given the poor success rate of major upgrade/integration projects, I'd say IBM is one of the culprits here. I'm a BH investor, and frankly I don't like them going into this space.

banku_brougham 10y ago

IBM is dying, http://www.cringely.com/2016/03/08/whats-happening-at-ibm/ http://www.cringely.com/2016/03/08/whats-happening-at-ibm/ I hope their Apple purchase isn't an indicator of the same.

rdtsc 10y ago
Yeah that guy wrote a book about how IBM is dying a few years ago and ever since then keeps writing blog posts about it. Whether it is dying or not I would not listen to him.
- banku_brougham 10y ago
  A behemoth like IBM takes a while to die. I've read a bit about IBM. They are toast, the market for mainframes, server racks and expensive enterprise service packages is disappearing.
  - notaharvardmba 10y ago
    Except watson, patents, their financing arm, 99 year contracts with governments globally...
    - josh2600 10y ago
      ... Have you ever tried to use Watson for anything? The aspect of dying is a forward looking thought which presumes that growth has ceased within the organization and the best they can do is to maintain their current state. I think that's a fairly accurate depiction of IBM's business although the recent performance notes I've seen of the Power chipset with PG_SQL are pretty encouraging.
    - ReedJessen 10y ago
      I estimate about 60% of IBMs patents are invalid after the recent Alice v. CLS Bank decision. Just no one has call them out on it yet.
  - deleted 10y ago

deleted 10y ago

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