17 ms·

Removing headcount and still maintaining the dividend will make it hard to hire in the future. It sets a clear signal where the priorities are.

smabie 6y ago
IBM absolutely needs the 5% dividend to survive, especially now. Without the dividend, IBM gets kicked out of all the high dividend ETFs and investors dump them on mass. Moreover, I imagine a substantial part of an employees comp is options or RSUs.
- deleted 6y ago
  [deleted]
- mettamage 6y ago
  Other than lower bonuses for employees. Why would this be bad for IBM to have a lower stock price? I understood all the terms, but I wouldn’t know the reasoning behind why it is important to be listed in certain places.
  - scribu 6y ago
    If the stock price is too low, then the company becomes a target for a hostile takeover. As an IBM executive, you don't want some PE firm becoming majority owner and replacing you with someone else.
    - mettamage 6y ago
      I don't know anything about IBM in this regard. Isn't that situation dependant? Or is such a thing common enough to say that this usually is the case? I.e. +50% shares need to be outstanding (assuming nothing is owned by the hostile PE firm).
      - scribu 6y ago
        You're right, there need to be enough outstanding shares for a hostile takeover to take place. But more relevantly to IBM's case, the top shareholders are also the top executives. [1] So, in this case, the stock price going down affects them direcly. [1] https://www.investopedia.com/articles/insights/052216/top-5-ibm-shareholders-ibm.asp https://www.investopedia.com/articles/insights/052216/top-5-...
        Tehdasi 6y ago
        Top individual shareholders. Their holdings are tiny, the highest one holds ~10m compared to a market cap of ~100B.
  - christophilus 6y ago
    The equity value affects your access to capital, if I remember right. So, if you want to take out loans to ramp up after the virus clears, you’ll be impeded by a low stock price. Not saying this is a good move by IBM, but there may be reasons other than evil rich executives.
  - fennecfoxen 6y ago
    Because they have one job. That job is not "be the caretaker of this flock of people," and honestly, trying to socialize that risk at the firm level leads to a lot of problems (not the least of which being that the firm can fail in a crisis). The purpose of IBM is to make IBM's owners money. When the stock price drops precipitously, they lose money instead. When the stock price falls so low that they fall out of indexes, it will then go even lower, as the companies which hold the stock in an attempt to mimic an index (index funds, etc) switch to getting rid of it instead, which means selling more of it to an already-skeptical public.
    - rightbyte 6y ago
      The purpose of a shovel is to drain water from fields? Making money for the owners are a side effect of the purpose of a company unless it is a holding company.
      - Nasrudith 6y ago
        There are multiple purposes for tools. Companies are started to make money as one of their purposes.
        rightbyte 6y ago
        Sure fair enought.
      - fennecfoxen 6y ago
        If IBM's owners didn't want to earn money on their investments, they'd have sent their money to charity directly, instead of buying IBM stock (and would have gotten much better charitable results). You are confusing the means to an end with the end itself.
  - pookeh 6y ago
    If IBM owns stock of itself then it can use that stock in lieu of cash to make acquisitions, hires, and bonuses. Having a lower stock price means it has a smaller leverage on those things.
- noad 6y ago
  So we are driving company decision making based on the needs of synthetic fake financial instruments? Is there any other way to run a company that is more stupid than striving to fulfill the needs of someone else's derivative product? I cannot imagine a worse basis on which to steer a company. It makes zero sense. Using a random number generator to pick every decision would result in better results than what we are currently doing. An example of a company that has completely succumbed to Wall Street is Texas Instruments. They are (or used to be) a tech company. They used to have research. They used to create new products. But in the past few years they have started committing to "returning 100% of free cash flow to investors" (quoting their own earnings release) via stock buybacks and dividends. They actually put it down in writing: we are committed to NOT reinvesting in employees, NOT doing R&D, NOT creating new products. In every earnings call about how they are still committed to getting all the cash into stock buybacks and dividends. That's it. That's the whole company now. Wall Street loves Texas Instruments. The shiny bucket of treasure known as stock buybacks + equity based compensation is irresistible. This is going to keep happening until we make it stop happening.
  - thrower123 6y ago
    It's not like IBM actually makes anything anymore, though. They've become a vampiric global services and consulting company, Cognizant or TCS with borrowed respectability from their past.
    - aryonoco 6y ago
      Wait, we're talking about the same company that now owns RedHat, and whose next CEO will be RedHat's CEO, right? The same RedHat that has been the number one contributor to the Linux kernel, Gnome, and many other projects for over 2 decades?
      - draw_down 6y ago
        Yep! That one.
      - thrower123 6y ago
- Lavery 6y ago
  A bunch of other folks have replied to different pieces of your comment, but I just want to point out that nearly all major index/ETF providers have halted rebalancing + reconstitution.
  - rajnathani 6y ago
    Do you have a source to share about this ETF rebalancing halt?
- beezle 6y ago
  Unless IBM plans to float some new shares (highly unlikely) they have no reason to care about what ETFs or indicies they are in. If anything, cutting the dividend and reinvesting it into research/capex and paying down debt will go a lot further in the long run to making the stock more valuable.
js8 6y ago
Or you could say that they predict it will be easier to hire in the future, so the "clear signal" doesn't matter anyway.
hestefisk 6y ago
I agree on this one. That’s a pretty short sighted move.
- pas 6y ago
  IBM is big, and full of inefficiencies. Plus it has a very large external risk (due to it being a contractor of many other big companies), and now that externality reached them: https://news.ycombinator.com/item?id=23271145 https://news.ycombinator.com/item?id=23271145
unishark 6y ago
It's just doubling down. Even in normal times companies will layoff employees in hopes of increasing stock price.
lotsofpulp 6y ago
IBM is already known not to be a good place to work, they have nothing left to lose.
draw_down 6y ago
This is IBM. The idea that now is the mask-off moment is so funny.
qroshan 6y ago
The world will be awashed with people wanting employment. I don't know where people get the idea that hiring will be difficult in a 20% unemployment environment.
fred_is_fred 6y ago
At 20% unemployment that's the last of their worries.
geodel 6y ago
Considering the folks IBM needs most of the time, it will never be hard to hire more.
thrownaway954 6y ago
I absolutely LOVE when i see statements like this as it is so out of touch with reality. put aside your self righteousness for a minute and realize that companies do the things they do to survive and increase share holder appeal. it's all about the bottom line. also remember that it's a job... you do it, get paid and go home. i don't care what their "priorities" are as long as they are paying me a good salary. also believe me, if you were unemployed and IBM was knocking at your door, you would take any job they gave you if it depended on feeding your family. your "priorities" would shift very quickly.
- ep103 6y ago
  Any time there has been any hiccup in the economy for the last 10 years, IBM has used it as an excuse to cut headcount. And they've always done so unscrupulously, as evidenced by the number of age discrimination lawsuits they've had during these layoff periods. While you're correct that companies have to layoff when they're financially constrained, you've chosen the wrong company to try to defend with that line. And your last sentence is apropros of nothing. "If you were starving of thirst, of course you would drink that stagnant pond water" does not mean that we should all start drinking, or praising, stagnant pond water.
- sgift 6y ago
  Your post is the one out of touch with reality. Most developers who get a job offer from IBM also get job offers from others, so they have options. "You are jobless and only this company wants you, so you will work for them even if they are shitty" is mostly fiction. Either no one wants you or multiple companies want you.
  - msrmthehomeless 6y ago
    > Most developers who get a job offer from IBM also get job offers from others, so they have options Not really. Naturally the best talents aims higher and as a result IBM gets a lot of FAANG rejects.
  - commandlinefan 6y ago
    No, your post is the one that is out of touch with reality. You're correct that if somebody is good enough to get an offer from IBM, they're good enough to get offers nearly everywhere else. Where you're wrong is thinking that most developers factor how well other developers are being treated when making employment decisions. If they cared, we would have had a professional association like the screen actor's guild decades ago that codified how developers deserve to be treated, but we don't.

smabie 6y ago

IBM absolutely needs the 5% dividend to survive, especially now. Without the dividend, IBM gets kicked out of all the high dividend ETFs and investors dump them on mass. Moreover, I imagine a substantial part of an employees comp is options or RSUs.

deleted 6y ago
[deleted]
mettamage 6y ago
Other than lower bonuses for employees. Why would this be bad for IBM to have a lower stock price? I understood all the terms, but I wouldn’t know the reasoning behind why it is important to be listed in certain places.
- scribu 6y ago
  If the stock price is too low, then the company becomes a target for a hostile takeover. As an IBM executive, you don't want some PE firm becoming majority owner and replacing you with someone else.
  - mettamage 6y ago
    I don't know anything about IBM in this regard. Isn't that situation dependant? Or is such a thing common enough to say that this usually is the case? I.e. +50% shares need to be outstanding (assuming nothing is owned by the hostile PE firm).
    - scribu 6y ago
      You're right, there need to be enough outstanding shares for a hostile takeover to take place. But more relevantly to IBM's case, the top shareholders are also the top executives. [1] So, in this case, the stock price going down affects them direcly. [1] https://www.investopedia.com/articles/insights/052216/top-5-ibm-shareholders-ibm.asp https://www.investopedia.com/articles/insights/052216/top-5-...
      - Tehdasi 6y ago
        Top individual shareholders. Their holdings are tiny, the highest one holds ~10m compared to a market cap of ~100B.
- christophilus 6y ago
  The equity value affects your access to capital, if I remember right. So, if you want to take out loans to ramp up after the virus clears, you’ll be impeded by a low stock price. Not saying this is a good move by IBM, but there may be reasons other than evil rich executives.
- fennecfoxen 6y ago
  Because they have one job. That job is not "be the caretaker of this flock of people," and honestly, trying to socialize that risk at the firm level leads to a lot of problems (not the least of which being that the firm can fail in a crisis). The purpose of IBM is to make IBM's owners money. When the stock price drops precipitously, they lose money instead. When the stock price falls so low that they fall out of indexes, it will then go even lower, as the companies which hold the stock in an attempt to mimic an index (index funds, etc) switch to getting rid of it instead, which means selling more of it to an already-skeptical public.
  - rightbyte 6y ago
    The purpose of a shovel is to drain water from fields? Making money for the owners are a side effect of the purpose of a company unless it is a holding company.
    - Nasrudith 6y ago
      There are multiple purposes for tools. Companies are started to make money as one of their purposes.
      - rightbyte 6y ago
        Sure fair enought.
    - fennecfoxen 6y ago
      If IBM's owners didn't want to earn money on their investments, they'd have sent their money to charity directly, instead of buying IBM stock (and would have gotten much better charitable results). You are confusing the means to an end with the end itself.
- pookeh 6y ago
  If IBM owns stock of itself then it can use that stock in lieu of cash to make acquisitions, hires, and bonuses. Having a lower stock price means it has a smaller leverage on those things.
noad 6y ago
So we are driving company decision making based on the needs of synthetic fake financial instruments? Is there any other way to run a company that is more stupid than striving to fulfill the needs of someone else's derivative product? I cannot imagine a worse basis on which to steer a company. It makes zero sense. Using a random number generator to pick every decision would result in better results than what we are currently doing. An example of a company that has completely succumbed to Wall Street is Texas Instruments. They are (or used to be) a tech company. They used to have research. They used to create new products. But in the past few years they have started committing to "returning 100% of free cash flow to investors" (quoting their own earnings release) via stock buybacks and dividends. They actually put it down in writing: we are committed to NOT reinvesting in employees, NOT doing R&D, NOT creating new products. In every earnings call about how they are still committed to getting all the cash into stock buybacks and dividends. That's it. That's the whole company now. Wall Street loves Texas Instruments. The shiny bucket of treasure known as stock buybacks + equity based compensation is irresistible. This is going to keep happening until we make it stop happening.
- thrower123 6y ago
  It's not like IBM actually makes anything anymore, though. They've become a vampiric global services and consulting company, Cognizant or TCS with borrowed respectability from their past.
  - aryonoco 6y ago
    Wait, we're talking about the same company that now owns RedHat, and whose next CEO will be RedHat's CEO, right? The same RedHat that has been the number one contributor to the Linux kernel, Gnome, and many other projects for over 2 decades?
    - draw_down 6y ago
      Yep! That one.
    - thrower123 6y ago
Lavery 6y ago
A bunch of other folks have replied to different pieces of your comment, but I just want to point out that nearly all major index/ETF providers have halted rebalancing + reconstitution.
- rajnathani 6y ago
  Do you have a source to share about this ETF rebalancing halt?
beezle 6y ago
Unless IBM plans to float some new shares (highly unlikely) they have no reason to care about what ETFs or indicies they are in. If anything, cutting the dividend and reinvesting it into research/capex and paying down debt will go a lot further in the long run to making the stock more valuable.

js8 6y ago

Or you could say that they predict it will be easier to hire in the future, so the "clear signal" doesn't matter anyway.

hestefisk 6y ago

I agree on this one. That’s a pretty short sighted move.

pas 6y ago
IBM is big, and full of inefficiencies. Plus it has a very large external risk (due to it being a contractor of many other big companies), and now that externality reached them: https://news.ycombinator.com/item?id=23271145 https://news.ycombinator.com/item?id=23271145

unishark 6y ago

It's just doubling down. Even in normal times companies will layoff employees in hopes of increasing stock price.

lotsofpulp 6y ago

IBM is already known not to be a good place to work, they have nothing left to lose.

draw_down 6y ago

This is IBM. The idea that now is the mask-off moment is so funny.

qroshan 6y ago

The world will be awashed with people wanting employment. I don't know where people get the idea that hiring will be difficult in a 20% unemployment environment.

fred_is_fred 6y ago

At 20% unemployment that's the last of their worries.

geodel 6y ago

Considering the folks IBM needs most of the time, it will never be hard to hire more.

thrownaway954 6y ago

I absolutely LOVE when i see statements like this as it is so out of touch with reality. put aside your self righteousness for a minute and realize that companies do the things they do to survive and increase share holder appeal. it's all about the bottom line. also remember that it's a job... you do it, get paid and go home. i don't care what their "priorities" are as long as they are paying me a good salary. also believe me, if you were unemployed and IBM was knocking at your door, you would take any job they gave you if it depended on feeding your family. your "priorities" would shift very quickly.

ep103 6y ago
Any time there has been any hiccup in the economy for the last 10 years, IBM has used it as an excuse to cut headcount. And they've always done so unscrupulously, as evidenced by the number of age discrimination lawsuits they've had during these layoff periods. While you're correct that companies have to layoff when they're financially constrained, you've chosen the wrong company to try to defend with that line. And your last sentence is apropros of nothing. "If you were starving of thirst, of course you would drink that stagnant pond water" does not mean that we should all start drinking, or praising, stagnant pond water.
sgift 6y ago
Your post is the one out of touch with reality. Most developers who get a job offer from IBM also get job offers from others, so they have options. "You are jobless and only this company wants you, so you will work for them even if they are shitty" is mostly fiction. Either no one wants you or multiple companies want you.
- msrmthehomeless 6y ago
  > Most developers who get a job offer from IBM also get job offers from others, so they have options Not really. Naturally the best talents aims higher and as a result IBM gets a lot of FAANG rejects.
- commandlinefan 6y ago
  No, your post is the one that is out of touch with reality. You're correct that if somebody is good enough to get an offer from IBM, they're good enough to get offers nearly everywhere else. Where you're wrong is thinking that most developers factor how well other developers are being treated when making employment decisions. If they cared, we would have had a professional association like the screen actor's guild decades ago that codified how developers deserve to be treated, but we don't.