It’s spring and Wall Street is hopelessly in love with IBM. Cherubic Lou Gerstner is playing Cupid. And anyone who points out that Big Blue might still have a few potholes ahead of it on the great corporate road, to say nothing of the information superhighway, is being treated like a fool and, if they’re […]
It’s spring and Wall Street is hopelessly in love with IBM. Cherubic Lou Gerstner is playing Cupid. And anyone who points out that Big Blue might still have a few potholes ahead of it on the great corporate road, to say nothing of the information superhighway, is being treated like a fool and, if they’re the betting kind, losing money on downside derivatives to boot. How can this be? IBM is carrying $27,300m in debt, paying a buck a share dividend and capable of earning, at best, $2.50 this year. No other company with the kind of inertia a $62,700m enterprise is bound to have (and which IBM has repeatedly exhibited) could possibly justify a price-earnings ratio of 20 based on anticipated – not actual – profit. More to the point, IBM’s biggest customers are being told by no less a figure than the Cupid of cupidity, Lou Gerstner, that the mainframes they need are going out of production as soon as the last big cheque is cashed. There’s a whole new world out there, the chairman has proclaimed. Microprocessors, client-server, services, personal computers, video dispensers, blah blah blah blah blah. Oh boy. This Gerstner is the same fellow who went out to Rochester, Minnesota, to talk to the AS/400 division and, in the middle of his big speech, had his trousers fall down. One fuel for IBM’s Wall Street success is Gerstner’s N Points Trick.
In IBM’s annual report, there is a list of Eight IBM Principles. Big Blue’s bigwigs, currying favour at the top, refer to these vapid homilies as Gerstner’s (not IBM’s) Eight Principles. On March 24, at the yearly meeting IBM holds for financial analysts, there were Six Strategic Imperatives, at least two of which looked the same to us: Increasing the company’s share of the client-server computing market and Becoming a world leader in a computing environment focused on networks. All this inoffensive but useless hogwash has not stood in the way of Gerstner’s promoting an image as a blunt and forthright captain of industry. The apparent source of this assessment of Gerstner’s admirable professional character, carried in all the important media, is the chairman’s letter to shareholders in which he points out that 1993 was a disaster for IBM. At the analysts’ meeting, Gerstner promised a bright tomorrow, according to a dispatch written by Thomas E Weber for the Dow Jones news service: In a memorandum to employees this morning, Gerstner assured workers that IBM has under way ‘some 15 to 20 very specific strategic projects that will determine our future,’ including strategies for making use of the new PowerPC microprocessor and exploring alternative distribution methods. He quickly added, however, that IBM isn’t at liberty to discuss the details of those specific projects. Instead he offered the six broad ‘strategic imperatives.’ Yet somehow this is working, if the stock market is any indication. Maybe it is the contrast of personalities between apparently charming Lou Gerstner and his predecessor John Akers, who had the charisma of a tapeworm. Maybe it is simply that the investment community is tired of beating up poor old Big Blue. But more likely it is just that the investors are a bunch of rich idiots who, if there is ever a return to fundamentals among the securities analysts, will be just plain idiots.
By Hesh Wiener
Amid all this undeserved happiness, which is usually the best kind, we cannot resist the cruel urge to point out that customers and investors are not the same crowd. Even if they were, buying IBM shares is not the same as buying IBM’s large systems strategy. For one thing, if you’re wrong about the shares you can sell them and right away you know what you’ve lost; if you’re wrong about the large systems strategy, you can’t sell anything but the hardware. Large enterprises are being prepared to participate, however unwillingly, in a trapeze act of unprecedented danger. IBM will announce new systems that are not even close to the old ones. Customers, flying through the air in stark terror and unprotected by a safety net, will be told to let go of the
bar to which they have been clinging. Somewhere ahead of these customers is another trapeze from which hangs a catcher from IBM. At the very last instant, the catcher will grab the customer’s wrists and carry him to the safety of a new perch. The audience, corporate managers all, will applaud wildly and the brass band, which had been silent except for a drum roll, will strike up a triumphant tune. IBM seems to have forgotten that large computer systems aren’t consumer products. In many ways, they aren’t a product at all. They are more like a city, the value and meaning of which is in part determined by buildings and infrastructure but which is known to its inhabitants and visitors mainly for its culture. That culture is the result of interplay among the people in the city – past and present – as they affect and are affected by each other and their physical surroundings. Large systems develop cultures and not just in the glass house. End users are a big part of the system and, some believe, the most important one. The shift to client-server computing – which seems to mean desktop computers linked by networks to other, usually more powerful, machines is a major cultural change. Smart workstations, compared to traditional terminals, empower end users. That is why the first users of personal computers in most companies were the relatively independent people who performed critical financial analysis. The second wave of personal computer users came from the word processing crowd, typically the support personnel in executive offices. These, too, were independent people, dedicated more to their bosses than to the corporation at large. But now everyone is getting into the act for better or for worse, as the targets of Cupid’s arrows might ultimately say. In the middle of this, in more ways than one, is the IBM mainframe. Not only is IBM unprepared to provide the technical support required by end users of intelligent terminals, it is also blind to the associated cultural issues. That ignorance is going to cost IBM a bundle. * * * This joke is good for at least another year: the bartender was surprised when the old geezer hobbled into his establishment late one afternoon. He was even more astonished when the codger hoisted himself onto the stool with the help of his cane and ordered. I’ll have a water glass full of straight bourbon, sonny, he said. No ice. Not in this bar, replied the bartender. You don’t look like you could handle that kind of drink. Now listen here, youngster, the old man said. I’ve got so much trouble you can’t even imagine. Believe me, I’m entitled. So you’ve got problems, said the bartender, not the least bit moved. Everybody’s got problems, including me. In fact, if you’re in worse shape than I am, I’ll not only serve you that drink, I’ll pay for it. But if not, goodbye, mister. Well it’s really none of your business, but I don’t feel like taking a hike so I’ll tell you, said the old guy: I just went to my doctor. He told me I had AIDS. At 96. So get me that drink, sonny. You can’t have anything worse than that. You’re wrong, old man, and you’re leaving, the bartender snapped back: I’ve got IBM at 140.
(C) 1994 From the April 1994 edition of Infoperspectives International, published by Technology News Ltd.