8 ms·

The Fed suckered IBM into a failing cloud strategy?

76 points by lmg643 12y ago

smackfu 12y ago
Why exactly does Cringley have such a hate on for IBM?
- throwawayaway 12y ago
  it seems common among ex-employees.
  - seanmcdirmid 12y ago
    IBM probably deserves it, but they have already stopped being relevant to most of us.
    - fat0wl 12y ago
      ...in the myopic startup world. I work for an enterprise doing WebSphere & I'm scared to see it go one day actually -- will be cool if it cheapens to the point where it is equivalent to an open source tech but I think its the proprietary nature that got it to where it is. Pretty big learning curve but it is rock-solid and would be quite an upgrade from a lot of the scripting lang stacks if it were to hit the world at large. Coming from RoR it feels like moving from a toy plane to a Harrier jet.
      - anonymousDan 12y ago
        '...but it's rock solid...'. From someone who did a lot of robustness testing against WebSphere in the course of writing a JMS adapter, you have got to be kidding?
        fat0wl 12y ago
        I think the clarification "watwut" makes is fitting -- it's not like it's complete perfection in every situation, but I use WebSphere 8.0 running a ton of apps written in a pretty wide variety of techs (Portal, Commerce, Message Broker, services). It even runs crappy legacy projects with minimal changes (literally 1 or 2 quick fixes suggested by IDE). Obviously it is a bit opinionated & works best when you code specifically for the APIs/standards it is currently attempting to embrace, but the all the open source scripting tools I've used are way more opinionated. I like WAS's take because I often find that it's exposing services that I don't even know about until I eventually need them. And it's not a lot of bloaty junk, it's essential JavaEE interfaces/protocols. I'll admit it took a while to grow on me and we have fantastic hardware...
      - watwut 12y ago
        WebSphere may be upgrade from a lot of the scripting lang stacks, but it still is a horrible crap. I think that open source J2EE compliant alternatives exist and are much much better.
      - sk5t 12y ago
        The solid parts are actually the JRE / JVM...
        fat0wl 12y ago
        eh yeah but it doesn't hurt to have an admin GUI and a ton of default stack config done for you, that's all I mean. WebSphere is like a 1-click install for a massive stack. The open source community seems to like DropWizard, Websphere is just like that on steroids. I'm sure a comparable stack can be made from open source components though and there are other companies who do the pre-packaged stack approach, I know. But WebSphere is kinda convenient and nicely integrated is all I mean. After spending a ton of time chasing down gem dependency conflict/upgrade issues using package managers in Ruby, I'm kindof impressed with the prescription full-stack. It's just like having a corp do all the dependency/interop checks so you don't have to. Limiting in a way but reduces a lot of friction.
    - BankingAnon 12y ago
      If you've ever read "IBM And The Holocaust" [1], you might say they deserve much more than this. 1. http://www.amazon.com/IBM-Holocaust-Strategic-Alliance-Corporation/dp/0914153102 http://www.amazon.com/IBM-Holocaust-Strategic-Alliance-Corpo...
- freditup 12y ago
  He seems like a sensationalist who has certain vendettas against specific companies and entities. I'm not sure why he's taken seriously at all... (As in, I really don't understand why he keeps getting posted on HN, not just some throwaway insult)
  - smacktoward 12y ago
    Because he wrote the best book ever written on the rise of the PC industry, Accidental Empires (http://www.amazon.com/Accidental-Empires-Silicon-Millions-Competition/dp/0887308554 http://www.amazon.com/Accidental-Empires-Silicon-Millions-Co...). And then turned it into a TV documentary miniseries, Triumph of the Nerds (http://www.amazon.com/Triumph-Nerds-Bob-Cringely/dp/B00006FXQO http://www.amazon.com/Triumph-Nerds-Bob-Cringely/dp/B00006FX...), which was best in class as well.
    - freditup 12y ago
      Hmm, perhaps you're right. But he seems to me to be in that category of authors who takes small bits of evidence and draws much to large of conclusions. (And yes, I'm doing the same thing with this very comment)
  - throwawayaway 12y ago
    sensationalist as he is, he's usually on the money about IBM. he had a huge following on slashdot too, and has a huge following among IBM employees with many wondering whether or not you get shitlisted for visiting cringely.com.
joshuaellinger 12y ago
My wife is an ex-IBM and the cut-to-get-growth story rings true. But it overlooks a core problem that IBM faces. The cloud is a competitive platform for problems that previously required mainframes. They successfully defended (kinda) against Oracle/Sun in areas like running large banks and stock exchanges. What happens to IBM when you can solve hard real-time transaction problems on 1000 loosely-coupled distributed computers instead of 1 large mainframe (made up of a 1000 processors with shared state)? That day is either here or close. My take is that they can't ignore the cloud but they can't win it either. Tough place to be.
- throwawayaway 12y ago
  ibm do distributed computing, their selling point will be that the firms computers will be on location, rather than away in a warehouse in another state.
- seanmcdirmid 12y ago
  Latency and concurrency. Mainframes still have an advantage vs. the more big data or multiple task friendly cluster.
- omh 12y ago
  It isn't just going to come from cloud/distributed systems. You can scale up to a huge extent just with average x86 servers now and these are competing with what used to be done on a mainframe. So even many companies who don't or can't use distributed systems don't need to use IBM any more.
- ebiester 12y ago
  And it's not just hitting in obvious places. Consider Hadoop. I know of at two major DB2 customer who are investing in Hadoop rather than expanding their DB2 capabilities to handle problems IBM would love to solve with their solutions.
- josho 12y ago
  IBM can milk the mainframe for years to come, because the cloud doesn't compete against its legacy enterprise customers. Large enterprises have chosen to retain many of their legacy mainframe applications. Previous attempts at re-writes have too frequently failed due to cost overruns or have been complete failures. So, the safe choice for a CIO is to avoid rewriting legacy systems (many have been around since the 60s or 70s). So, IBM customers will continue paying their premium to run on a mainframe, and in some cases will leverage their existing skills/systems to deploy more onto their IBM systems. This mainframe strategy for IBM will keep many of their legacy customers, but as Cringley and others point out, it fails to capture new growth.
chiph 12y ago
Not only can they not make a profit on running cloud services, they can't make a profit selling hardware to the people who do, either. Something..something..selling the division to Lenovo...
- Spooky23 12y ago
  They couldn't do that before either. The people buying IBM x86 servers were people who were already snookered into buying POWER or Mainframe systems.
mathattack 12y ago
First of all, Cringely is right on the first part. IBM, and many other companies, are taking advantage of the low rate environment to borrow money and buy back stock. This is capital structure optimization, and many companies do it. He is tongue is cheek about the problems being the Fed's fault. There are impacts to this policy. By borrowing to buy back equity, you are increasing the chance of distress. You don't increase your cash position, but you do increase the amount of interest payments you have to it. (Albeit less due to the low rate environment) This means it is more difficult to bet on anything that isn't a sure thing. That said, perhaps this is the best way for shareholders to wind down a company that can no longer innovate. At some point, large companies can cease to be innovative, and cease to profitably handle acquisitions. Then what? Especially if you're too big to be bought out yourself. There are two options... One - Split yourself up and sell the parts to the highest bidders. Two - Buy back the shares. Shrinking the outstanding shareholder base will increase the per-share value even if the total corporate value is flat. Rather than waste money on innovation (if you can't) or M&A (if you overpay and underintegrate) better to give it back to the shareholders and let them invest capital in companies that can grow. Borrowing to buy back shares is just taking case #2 to the extreme, and ultimately passing the buck to the long term bond holders.
- walshemj 12y ago
  Or you know just have a special dividend share buybacks (outwith IT's controlling discount) always struck me as a way to line the pockets of the advisors and not the actual shareholders.
  - mathattack 12y ago
    Generally share buybacks help the shareholders quite a bit. Unless I'm wrong, the advisors don't skim as much off of buybacks as they do IPOs. (And I am wrong more than I care to admit!)
    - walshemj 12y ago
      But a dividend is a quantifiable amount than just the company buying shares and hope the market follows rationally.
luu 12y ago
Cutting costs isn't IBM's strategy to get out of the recession. Cutting costs is IBM's strategy. I interned there in 2003, and it was already apparent that they preferred to hire people overseas and let attrition reduce the ranks of folks locally in order to reduce costs. From all the complaints, it was clear at the time that was causing serious problems with R&D. The joke around the office was that we'd replace one person locally with three people overseas, losing the output of two people, since the three overseas people were so clueless they'd need a local person holding their hands full-time. I was doing microprocessor design at the time, and the community is small enough that everyone know that Intel was getting good folks overseas. But even at the reduced wages outside the U.S., IBM was cutting corners and not hiring the best people. Even locally, they try to reduce costs. A friend of mine who stuck around long enough to make it into management told me that they try to keep salaries at about the 40%-ile to save costs. On finding that out (as well as a few other gems), he left. Until I heard that, I couldn't figure why brilliant friends of mine often got raises that didn't even cover inflation. Don't they know that people are going to leave because of that? They know, and that's their strategy. The thing about Bernanke comes out of left field. IBM didn't use low interest rates to invest therefore "the companies that were expected to spend us back to better economic health didn’t do so" therefore low interest rates didn't make the recession less severe than it otherwise would have been? No comment on whether or not those last two statements are actually true (I'm not an economist and haven't studied the issue), but Cringley certainly doesn't make a case for them.
- mkaziz 12y ago
  I interned there too in 2011 and can testify that employee morale is ridiculously low. No one loves the company, the only people who were working hard were the lifers who'd joined after college and were still there at 40 or 50.
  - iends 12y ago
    This is why I left IBM (SWG) a few months ago. When I turned in my notice after 1.5 years at IBM, people, including very senior people and managers, cheered me on saying things like "I wish I could leave" or "I put my notice in 6 months ago but they gave me a huge raise...". When the financial gimmicks run out, IBM is absolutely screwed because they've been cannibalizing their most valuable asset for short term shareholder value.
elmerland 12y ago
The article has two good points about IBM buying shares back and not being able to compete in the cloud market. However, I fail to see how the Fed directly caused IBM to fail in their cloud strategy? Seems that IBM management fail to spend/borrow money wisely.
- lay_man 12y ago
  I read it as Cringely being sarcastic, esp when you read the last para taking a potshot at Ginni.
forgottenpass 12y ago
The result of all this is that IBM management has lost touch with reality. I see that the author needed some connective tissue between the bit about The Fed and IBM's cloud plans but any IBMer/ex-IBMer can tell you they're out of touch. The disagreement is about when they lost it. Most, including this author, will point to whenever the domain they're experts in was mismanaged to hell. But IBM will keep on trucking right past their foray into "the cloud," constantly chasing the latest fads, and letting older divisions wither and die because nobody in charge understand the tech domain well enough to salvage them.
PaulHoule 12y ago
I dunno. What I do know is that IBM seems to be the #2 advertiser on TV and in magazines after that stupid gecko. It is trying more and more to be like those Indian outsourcers like Wipro and Infosys, but the difference is that Wipro and Infosys pay the CEO at Indian rates and spend customer money on solving customer problems rather than sponsoring tennis and golf tournaments.
dev_jim 12y ago
Cringely should stick to commenting on tech as opposed to the validity of raising debt to do share buybacks in a low interest rate environment.
lnanek2 12y ago
IBM makes its money on the consulting anyway, they don't need to make money off the cloud services. They just need to sell lots of $200+/hr consulting services putting people on them.
- hvs 12y ago
  Consulting (and services in general) is a low-margin business. You can only increase revenue by tricking young college grads to work 80-hour weeks at low pay.
  - scholia 12y ago
    Margins on services are much higher than margins on hardware. While they're much lower than margins on software, margins on consulting services are also much harder to attack.
    - johnward 12y ago
      When they are paying someone $40 per hour and billing that person at $300 per hour there has to be a nice margin in there.
      - scholia 12y ago
        Sure, but software gross margins are typically above 80%. (And should be close to 100% in a serve-yourself online software business, where the manufacturing cost is zero.)
sailfast 12y ago
The headline got me to click, but I fail to see how cheap interest rates makes IBM's potential cloud failure the fault of the Fed. You could argue low rates force the hand of some firms - the stock buyback argument made sense in the article and had me following. How a strategic decision like "Cloud is where we're going as a company" can be traced to the Fed? That's where I lose the thread. What if they had decided on another investment area? Would you be writing the same article? Would one write an "The Fed suckered Amazon into a successful cloud strategy" article?
- wpietri 12y ago
  I don't think it's the fault of the Fed. If somebody making $16 million a year can't be held responsible for their choices, it's a sad world we live in. But I do think cheap money has let IBM coast a little. Our business culture has a theory, one I think mainly dumb, that if we tie executive rewards to stock prices, they'll do good things for their companies. In this case, cheap money lets them get paid without doing anything useful.
tedsanders 12y ago
The article says that because of expansionary monetary policy, "[Businesses] tended to borrow money and invest in their own shares." To me, this statement seems nonsensical. Here's why: Fed policy affects things by changing the aggregates. But stock ownership can never change in the aggregate. If you have extra money and you buy some stock, for every dollar you spent buying stocks, someone else now a has a dollar from selling you the stocks. A common myth is that money can go "into" an asset class. It cannot. It's impossible for extra money to end up invested in stocks in aggregate, because for every buyer there must be a seller. Individually, you may have less money, but that's balanced by someone else having even more money now. Stock sales will never change the aggregate money supply nor aggregate investment nor total stock ownership. So what is cringely saying here? I'd appreciate if anyone could explain the logic. I don't want to pre-judge, but my suspicion is that monetary policy is a subtle issue and that blaming the Fed is fun, both of which lead to mistakes such as this one. (In fairness, perhaps the author means to say that specifically IBM used low interest rates to buy stock and not that businesses generally did this. That is a charitable interpretation that makes more sense and deviates only a little from what was actually written.)
- scholia 12y ago
  He's channeling someone else, which is why the first three words in Cringely's article are "Economist David Stockman". See https://news.ycombinator.com/item?id=8085628 https://news.ycombinator.com/item?id=8085628
- lkrubner 12y ago
  About this: "It's impossible for extra money to end up invested in stocks in aggregate, because for every buyer there must be a seller." If I buy a share for $1, and then a year later sell it for $10, then the new buyer is putting $9 extra dollars into that asset class.
  - tedsanders 12y ago
    If person A buys a share for $1, then another person must sell a share for $1. A year later, if person A sells a share for $10, then another person must buy a share for $10. At all times, someone is always holding the money created by the Fed. The money never "went in" to stocks. Sure, the valuation of the stocks changed, but the aggregate money supply and the aggregate stock ownership never changed.
stonogo 12y ago
IBM has stopped targeting excellence and started targeting EPS. You cannot operate a business without looking up from your spreadsheets once in a while, no matter how big that business is. Earnings per share should be a natural byproduct of excelling in your market.

76 points by lmg643 12y ago

smackfu 12y ago

Why exactly does Cringley have such a hate on for IBM?

throwawayaway 12y ago
it seems common among ex-employees.
- seanmcdirmid 12y ago
  IBM probably deserves it, but they have already stopped being relevant to most of us.
  - fat0wl 12y ago
    ...in the myopic startup world. I work for an enterprise doing WebSphere & I'm scared to see it go one day actually -- will be cool if it cheapens to the point where it is equivalent to an open source tech but I think its the proprietary nature that got it to where it is. Pretty big learning curve but it is rock-solid and would be quite an upgrade from a lot of the scripting lang stacks if it were to hit the world at large. Coming from RoR it feels like moving from a toy plane to a Harrier jet.
    - anonymousDan 12y ago
      '...but it's rock solid...'. From someone who did a lot of robustness testing against WebSphere in the course of writing a JMS adapter, you have got to be kidding?
      - fat0wl 12y ago
        I think the clarification "watwut" makes is fitting -- it's not like it's complete perfection in every situation, but I use WebSphere 8.0 running a ton of apps written in a pretty wide variety of techs (Portal, Commerce, Message Broker, services). It even runs crappy legacy projects with minimal changes (literally 1 or 2 quick fixes suggested by IDE). Obviously it is a bit opinionated & works best when you code specifically for the APIs/standards it is currently attempting to embrace, but the all the open source scripting tools I've used are way more opinionated. I like WAS's take because I often find that it's exposing services that I don't even know about until I eventually need them. And it's not a lot of bloaty junk, it's essential JavaEE interfaces/protocols. I'll admit it took a while to grow on me and we have fantastic hardware...
    - watwut 12y ago
      WebSphere may be upgrade from a lot of the scripting lang stacks, but it still is a horrible crap. I think that open source J2EE compliant alternatives exist and are much much better.
    - sk5t 12y ago
      The solid parts are actually the JRE / JVM...
      - fat0wl 12y ago
        eh yeah but it doesn't hurt to have an admin GUI and a ton of default stack config done for you, that's all I mean. WebSphere is like a 1-click install for a massive stack. The open source community seems to like DropWizard, Websphere is just like that on steroids. I'm sure a comparable stack can be made from open source components though and there are other companies who do the pre-packaged stack approach, I know. But WebSphere is kinda convenient and nicely integrated is all I mean. After spending a ton of time chasing down gem dependency conflict/upgrade issues using package managers in Ruby, I'm kindof impressed with the prescription full-stack. It's just like having a corp do all the dependency/interop checks so you don't have to. Limiting in a way but reduces a lot of friction.
  - BankingAnon 12y ago
    If you've ever read "IBM And The Holocaust" [1], you might say they deserve much more than this. 1. http://www.amazon.com/IBM-Holocaust-Strategic-Alliance-Corporation/dp/0914153102 http://www.amazon.com/IBM-Holocaust-Strategic-Alliance-Corpo...
freditup 12y ago
He seems like a sensationalist who has certain vendettas against specific companies and entities. I'm not sure why he's taken seriously at all... (As in, I really don't understand why he keeps getting posted on HN, not just some throwaway insult)
- smacktoward 12y ago
  Because he wrote the best book ever written on the rise of the PC industry, Accidental Empires (http://www.amazon.com/Accidental-Empires-Silicon-Millions-Competition/dp/0887308554 http://www.amazon.com/Accidental-Empires-Silicon-Millions-Co...). And then turned it into a TV documentary miniseries, Triumph of the Nerds (http://www.amazon.com/Triumph-Nerds-Bob-Cringely/dp/B00006FXQO http://www.amazon.com/Triumph-Nerds-Bob-Cringely/dp/B00006FX...), which was best in class as well.
  - freditup 12y ago
    Hmm, perhaps you're right. But he seems to me to be in that category of authors who takes small bits of evidence and draws much to large of conclusions. (And yes, I'm doing the same thing with this very comment)
- throwawayaway 12y ago
  sensationalist as he is, he's usually on the money about IBM. he had a huge following on slashdot too, and has a huge following among IBM employees with many wondering whether or not you get shitlisted for visiting cringely.com.

joshuaellinger 12y ago

My wife is an ex-IBM and the cut-to-get-growth story rings true. But it overlooks a core problem that IBM faces. The cloud is a competitive platform for problems that previously required mainframes. They successfully defended (kinda) against Oracle/Sun in areas like running large banks and stock exchanges. What happens to IBM when you can solve hard real-time transaction problems on 1000 loosely-coupled distributed computers instead of 1 large mainframe (made up of a 1000 processors with shared state)? That day is either here or close. My take is that they can't ignore the cloud but they can't win it either. Tough place to be.

throwawayaway 12y ago
ibm do distributed computing, their selling point will be that the firms computers will be on location, rather than away in a warehouse in another state.
seanmcdirmid 12y ago
Latency and concurrency. Mainframes still have an advantage vs. the more big data or multiple task friendly cluster.
omh 12y ago
It isn't just going to come from cloud/distributed systems. You can scale up to a huge extent just with average x86 servers now and these are competing with what used to be done on a mainframe. So even many companies who don't or can't use distributed systems don't need to use IBM any more.
ebiester 12y ago
And it's not just hitting in obvious places. Consider Hadoop. I know of at two major DB2 customer who are investing in Hadoop rather than expanding their DB2 capabilities to handle problems IBM would love to solve with their solutions.
josho 12y ago
IBM can milk the mainframe for years to come, because the cloud doesn't compete against its legacy enterprise customers. Large enterprises have chosen to retain many of their legacy mainframe applications. Previous attempts at re-writes have too frequently failed due to cost overruns or have been complete failures. So, the safe choice for a CIO is to avoid rewriting legacy systems (many have been around since the 60s or 70s). So, IBM customers will continue paying their premium to run on a mainframe, and in some cases will leverage their existing skills/systems to deploy more onto their IBM systems. This mainframe strategy for IBM will keep many of their legacy customers, but as Cringley and others point out, it fails to capture new growth.

chiph 12y ago

Not only can they not make a profit on running cloud services, they can't make a profit selling hardware to the people who do, either. Something..something..selling the division to Lenovo...

Spooky23 12y ago
They couldn't do that before either. The people buying IBM x86 servers were people who were already snookered into buying POWER or Mainframe systems.

mathattack 12y ago

First of all, Cringely is right on the first part. IBM, and many other companies, are taking advantage of the low rate environment to borrow money and buy back stock. This is capital structure optimization, and many companies do it. He is tongue is cheek about the problems being the Fed's fault. There are impacts to this policy. By borrowing to buy back equity, you are increasing the chance of distress. You don't increase your cash position, but you do increase the amount of interest payments you have to it. (Albeit less due to the low rate environment) This means it is more difficult to bet on anything that isn't a sure thing. That said, perhaps this is the best way for shareholders to wind down a company that can no longer innovate. At some point, large companies can cease to be innovative, and cease to profitably handle acquisitions. Then what? Especially if you're too big to be bought out yourself. There are two options... One - Split yourself up and sell the parts to the highest bidders. Two - Buy back the shares. Shrinking the outstanding shareholder base will increase the per-share value even if the total corporate value is flat. Rather than waste money on innovation (if you can't) or M&A (if you overpay and underintegrate) better to give it back to the shareholders and let them invest capital in companies that can grow. Borrowing to buy back shares is just taking case #2 to the extreme, and ultimately passing the buck to the long term bond holders.

walshemj 12y ago
Or you know just have a special dividend share buybacks (outwith IT's controlling discount) always struck me as a way to line the pockets of the advisors and not the actual shareholders.
- mathattack 12y ago
  Generally share buybacks help the shareholders quite a bit. Unless I'm wrong, the advisors don't skim as much off of buybacks as they do IPOs. (And I am wrong more than I care to admit!)
  - walshemj 12y ago
    But a dividend is a quantifiable amount than just the company buying shares and hope the market follows rationally.

luu 12y ago

Cutting costs isn't IBM's strategy to get out of the recession. Cutting costs is IBM's strategy. I interned there in 2003, and it was already apparent that they preferred to hire people overseas and let attrition reduce the ranks of folks locally in order to reduce costs. From all the complaints, it was clear at the time that was causing serious problems with R&D. The joke around the office was that we'd replace one person locally with three people overseas, losing the output of two people, since the three overseas people were so clueless they'd need a local person holding their hands full-time. I was doing microprocessor design at the time, and the community is small enough that everyone know that Intel was getting good folks overseas. But even at the reduced wages outside the U.S., IBM was cutting corners and not hiring the best people. Even locally, they try to reduce costs. A friend of mine who stuck around long enough to make it into management told me that they try to keep salaries at about the 40%-ile to save costs. On finding that out (as well as a few other gems), he left. Until I heard that, I couldn't figure why brilliant friends of mine often got raises that didn't even cover inflation. Don't they know that people are going to leave because of that? They know, and that's their strategy. The thing about Bernanke comes out of left field. IBM didn't use low interest rates to invest therefore "the companies that were expected to spend us back to better economic health didn’t do so" therefore low interest rates didn't make the recession less severe than it otherwise would have been? No comment on whether or not those last two statements are actually true (I'm not an economist and haven't studied the issue), but Cringley certainly doesn't make a case for them.

mkaziz 12y ago
I interned there too in 2011 and can testify that employee morale is ridiculously low. No one loves the company, the only people who were working hard were the lifers who'd joined after college and were still there at 40 or 50.
- iends 12y ago
  This is why I left IBM (SWG) a few months ago. When I turned in my notice after 1.5 years at IBM, people, including very senior people and managers, cheered me on saying things like "I wish I could leave" or "I put my notice in 6 months ago but they gave me a huge raise...". When the financial gimmicks run out, IBM is absolutely screwed because they've been cannibalizing their most valuable asset for short term shareholder value.

elmerland 12y ago

The article has two good points about IBM buying shares back and not being able to compete in the cloud market. However, I fail to see how the Fed directly caused IBM to fail in their cloud strategy? Seems that IBM management fail to spend/borrow money wisely.

lay_man 12y ago
I read it as Cringely being sarcastic, esp when you read the last para taking a potshot at Ginni.

forgottenpass 12y ago

The result of all this is that IBM management has lost touch with reality. I see that the author needed some connective tissue between the bit about The Fed and IBM's cloud plans but any IBMer/ex-IBMer can tell you they're out of touch. The disagreement is about when they lost it. Most, including this author, will point to whenever the domain they're experts in was mismanaged to hell. But IBM will keep on trucking right past their foray into "the cloud," constantly chasing the latest fads, and letting older divisions wither and die because nobody in charge understand the tech domain well enough to salvage them.

PaulHoule 12y ago

I dunno. What I do know is that IBM seems to be the #2 advertiser on TV and in magazines after that stupid gecko. It is trying more and more to be like those Indian outsourcers like Wipro and Infosys, but the difference is that Wipro and Infosys pay the CEO at Indian rates and spend customer money on solving customer problems rather than sponsoring tennis and golf tournaments.

dev_jim 12y ago

Cringely should stick to commenting on tech as opposed to the validity of raising debt to do share buybacks in a low interest rate environment.

lnanek2 12y ago

IBM makes its money on the consulting anyway, they don't need to make money off the cloud services. They just need to sell lots of $200+/hr consulting services putting people on them.

hvs 12y ago
Consulting (and services in general) is a low-margin business. You can only increase revenue by tricking young college grads to work 80-hour weeks at low pay.
- scholia 12y ago
  Margins on services are much higher than margins on hardware. While they're much lower than margins on software, margins on consulting services are also much harder to attack.
  - johnward 12y ago
    When they are paying someone $40 per hour and billing that person at $300 per hour there has to be a nice margin in there.
    - scholia 12y ago
      Sure, but software gross margins are typically above 80%. (And should be close to 100% in a serve-yourself online software business, where the manufacturing cost is zero.)

sailfast 12y ago

The headline got me to click, but I fail to see how cheap interest rates makes IBM's potential cloud failure the fault of the Fed. You could argue low rates force the hand of some firms - the stock buyback argument made sense in the article and had me following. How a strategic decision like "Cloud is where we're going as a company" can be traced to the Fed? That's where I lose the thread. What if they had decided on another investment area? Would you be writing the same article? Would one write an "The Fed suckered Amazon into a successful cloud strategy" article?

wpietri 12y ago
I don't think it's the fault of the Fed. If somebody making $16 million a year can't be held responsible for their choices, it's a sad world we live in. But I do think cheap money has let IBM coast a little. Our business culture has a theory, one I think mainly dumb, that if we tie executive rewards to stock prices, they'll do good things for their companies. In this case, cheap money lets them get paid without doing anything useful.

tedsanders 12y ago

The article says that because of expansionary monetary policy, "[Businesses] tended to borrow money and invest in their own shares." To me, this statement seems nonsensical. Here's why: Fed policy affects things by changing the aggregates. But stock ownership can never change in the aggregate. If you have extra money and you buy some stock, for every dollar you spent buying stocks, someone else now a has a dollar from selling you the stocks. A common myth is that money can go "into" an asset class. It cannot. It's impossible for extra money to end up invested in stocks in aggregate, because for every buyer there must be a seller. Individually, you may have less money, but that's balanced by someone else having even more money now. Stock sales will never change the aggregate money supply nor aggregate investment nor total stock ownership. So what is cringely saying here? I'd appreciate if anyone could explain the logic. I don't want to pre-judge, but my suspicion is that monetary policy is a subtle issue and that blaming the Fed is fun, both of which lead to mistakes such as this one. (In fairness, perhaps the author means to say that specifically IBM used low interest rates to buy stock and not that businesses generally did this. That is a charitable interpretation that makes more sense and deviates only a little from what was actually written.)

scholia 12y ago
He's channeling someone else, which is why the first three words in Cringely's article are "Economist David Stockman". See https://news.ycombinator.com/item?id=8085628 https://news.ycombinator.com/item?id=8085628
lkrubner 12y ago
About this: "It's impossible for extra money to end up invested in stocks in aggregate, because for every buyer there must be a seller." If I buy a share for $1, and then a year later sell it for $10, then the new buyer is putting $9 extra dollars into that asset class.
- tedsanders 12y ago
  If person A buys a share for $1, then another person must sell a share for $1. A year later, if person A sells a share for $10, then another person must buy a share for $10. At all times, someone is always holding the money created by the Fed. The money never "went in" to stocks. Sure, the valuation of the stocks changed, but the aggregate money supply and the aggregate stock ownership never changed.

stonogo 12y ago

IBM has stopped targeting excellence and started targeting EPS. You cannot operate a business without looking up from your spreadsheets once in a while, no matter how big that business is. Earnings per share should be a natural byproduct of excelling in your market.