We divested networking back in the ‘90s, we divested PCs back in the 2000s, we divested semiconductors about five years ago
Is it just me or does anyone else feel over the decades they've been divesting some of the best (long term) building blocks? A company with vertically integrated silicon, compute, networking, cloud, AI, Enterprise etc. seems like it could have such an edge if only they had focused those engineering capabilities on consolidated, high-margin end products.
I see the other big players going the opposite direction. e.g. Google and Amazon are building their own silicon for an edge in Cloud and AI.
So-called SexyIBM is just another cloud company without a distinguishing barrier to entry. Sure, their growth will look good on paper for a few years, but when Cloud becomes commoditized (which I think is already happening), the capabilities which could have created the kind of real innovation that opens up whole new industries will have all been cleaved away.
can confirm, IBM (GTS at least) has more people dedicated to ensuring you project your future billable hours and will directly reduce your performance rating for not providing the projections every 2 weeks than if you miss client deliverables consistently.
I'm sure lots of people at IBM have EE degrees throughout it's existence. That hasn't caused the company to behave any differently. When approached by IBM to help my company build out our cloud infrastructure, we had salient measured targets and the reps (and subsequent "technical people to answer our questions") who presented were woefully inept. I was the Director of Engineering, what did they think they were doing pitching me butterflies and rainbows? What IBM has done for decades, like all the other parasitic remnants of industry (Oracle, Yahoo, arguably Apple, etc), and no CEO is changing that culture.
They are indeed incompetent, since a large chunk of competent people won't go there any more. But what kind of financial voodoo is keeping them afloat? Is it another Sears in waiting?
Present day IBM is not very different from GE. It is a financial company trying to survive from profits in areas it monopolizes. Without anything else to do, GE is going down hard and now is being investigated by the SEC for "accounting practices", i.e., financial manipulation to keep the company alive.
They're effective as an Oracle-like consulting company that buys third-party products, integrates them into their platform, and then cross-sells them hard.
I don't know what they meant, but I think the case is reasonably easy, if the accusation is "financial engineering." Apple's overall range of products have shrunk over the years. I'm old enough to remember when they had 20 different kinds of desktop computers, updated every year. They now have 1 desktop, updated every few years, one laptop, updated every few years.
There is a sense they've given up on everything but the iPhone. Arguably, Apple keeps producing Mac computers only because iPhone devs need to run XCode somewhere.
The iPhone was introduced in 2007. It was very innovative at the time, though now it has dozens of Android clones. Total sales of iPhones seems to have peaked -- increases in Apple's profits have come from raising prices and managing margins.
This last bit would be the heart of the case that Apple is now increasingly financial in nature and therefore parasitic. They don't seem to be rolling out much in the way of new products, and certainly nothing as "change the world" as the iPhone was in 2007.
I think it is well known that Apple does not have the "division per product group" structure that almost all other large companies have. But Apple has an unusually narrow range of products for such a large company.
Even projects that Apple seemed excited about 6 or 7 years ago, such as home entertainment, no longer seems to be priority for them. I can tell you from personal experience, their Apple TV has been absolutely stagnant for years, and many of the problems, which I assumed they would eventually fix, have not been fixed.
> They now have 1 desktop, updated every few years, one laptop, updated every few years.
Not true. They have three desktop form factors — Mac Mini, iMac and Mac Pro — and three laptop form factors — MacBook Air, 13" MacBook Pro and 16" MacBook pro. And each can be variously customised by CPU, memory, storage, etc. Most of these are updated with 1-2 year cadence.
Of course, it's much easier to make any case if you disregard the most basic facts within the first paragraph.
I think that a case for having a very lean product line-up can be made from an engineering perspective as well. Having few SKUs and changing them rarely allows to focus on quality. It allows for very efficient manufacturing, since production is all about economies of scale. For already established product types, it enables iterative refinement. But perhaps most importantly it allows to put innovation focus on new kinds of products. The PC, laptop and tablet have all been invented and standardized.
With the AirPods, Apple has again managed to establish themselves as a leading player (in affluent market/segments). They did the same with smartwatches a while back. Their track record is strong. Probably will do the same with... $FutureProductCategory. Of course this is only partly due to engineering and product design - brand building and marketing also vital components.
And I think it is fair to say, that while a strong engineering organization, Apple is not engineering-driven. They consider engineering as a means to deliver good product, not an end in itself.
You are missing the iPad and their smartwatch. It is very important for a premium company to have lesser variety, but higher quality. I cannot respond to quality of their Macs, however the tablets, watches and phones are pretty well made compared to their counterparts. The only exception was old Nokia windows phones, but they do not exist anymore.
Hmm. At first I disagreed with you, but when I think about it over time, I think I'm forced to agree.
Their newer MacBooks are going to be ARM based, which, I think, is mostly so that they have more people to develop apps for their phones and iPads. The rest of their customers will be buying them simply for day-to-day stuff wrapped in a pretty package.
I'm trying to think of a major Android phone manufacturer that does the same as Apple, but am coming up blank. Samsung, Sony, Oppo, etc, are all companies that have a multitude of products.
Maybe the only other comparison would be Google, but they were primarily a software company that is now making Pixel devices.So, not quite the same thing.
> Their newer MacBooks are going to be ARM based, which, I think, is mostly so that they have more people to develop apps for their phones and iPads.
I think it's oversimplifying the situation to say "Apple wants ARM just for mobile", though. While that's certainly a benefit of having a single architecture to support in their product ecosystem, there have been plenty of threads on HN about how Intel's rate of chip improvements have been stagnating. The much-touted scaleup of their 10-nm chips ended up being delayed by 2 years, and their 7-nm chips aren't arriving until 2023, by their own (likely optimistic) estimate[1]. The more likely narrative is that relying on Intel became untenable both cost- and performance-wise.
I feel it has been a shift of focus from building new and innovative products to building supremely profitable products. It doesn't sound that big of a difference but in terms of how it affects the end user it is a noticeable change. You feel more like cattle that is being herded to buy this and that, very expensive stuff, knowing that something is off and it shouldn't be this expensive.
When trying to surpass their last year's profit margins they shouldn't do it mainly by increasing the prices. Even though the frog doesn't leap when you increase the temperature slowly, shouldn't mean you should do it.
IBM business units are black (Profitable or losing a small amount of money but missing targets), green (exceeding targets), or red (rapidly dropping revenue and losing money) blocks.
They buy a business, it's black. They don't understand how the block works, but they need to to be more profitable, so they paint the IBM logo on everything, cut costs and headcount until it is green for a short while. Then it turns black, they rinse and repeat. They make it green a few more times and then finally instead of green, it turns red!
Then they combine some red blocks, bundle them together, make it look black or green and sell them off.
This looks like the biggest bundle jettison ever, but after acquiring Red Hat, that makes sense.
Contrary to popular knowledge, free market companies don't grow to take over the world. They grow until they get strangled by their own bureaucracy, and then rot away to be replaced by a younger, nimbler company without the bureaucracy.
History is full of examples. Just look at the top 10 American companies by market cap, decade by decade.
Sounds like an interesting exercise. Let's look at the ten largest American companies by market capitalization in 1960.
1. American Telephone & Telegraph is now called AT&T and was in the top 10 within the last decade.
2. General Motors has dropped off the top 100 for a while, but was the world's largest automaker within the last decade.
3. E.I. du Pont Nemours dropped off the top 100 in the last few years, but was the world's largest chemical company within the last decade before selling off Dow.
4. Standard Oil Co of NJ is essentially ExxonMobil and has been the #1 largest company within the last decade.
5. General Electric has been in the top 10 within the last decade.
6. IBM has been in the top 10 within the last decade.
7. Texas Company is now called Texaco and is part of Chevron, which has been in the top 10 within the last decade.
8. Union Carbide had one of the world's largest industrial disasters, and its later history is involved with duPont above as part of Dow.
9. Eastman Kodak ceased being relevant in the last 20 years.
10. Sears Roebuck & Company has collapsed, last being the largest retailer in the 1980s.
tl;dr: Of the top 10 in 1960, half have been in the top 10 within the last decade (including the former #1) and one has been #1 within the last decade.
I do plan to go back farther in time; I think it will also be interesting.
The claim about RCA seems unlikely. Radio Corporation of America stock grew very fast through the 1920s, peaking in September 1929 before the crash. However, even at the very end, it doesn't seem to even have been top 10 among industrials in the S&P index: http://piketty.pse.ens.fr/files/McGrattanPrescott2001.pdf#pa...
Instead, on that list we have companies like General Motors, General Electric, and Standard Oil of New Jersey that were still big in 1960 (and as mentioned above, some still so in the last decade).
And yet Jack Welch somehow came to be looked upon as a management guru instead of someone who gutted the long-term viability of GE in favor of financialization.
Luckily I think history is doing its job in changing how Jack Welch's legacy will be remembered. I don't think students or upcoming businesspeople are really learning Welch's approach anymore.
The business lines you offered as examples are low margin commodities or stuff GE really sucked at. Trains seems like a reasonable high margin line of business for a company that is actually good at industrial engineering.
but is it high-margin, high-growth? The same thing is happening in Germany with Siemens for years... - just 10-20 years later than the US. Once they did everything (for real): car parts, control software, nuclear reactors, trains, solar cells, semiconductors, computers (even mainframes), medicine products, household appliances. Nowadays: BLOCKCHAIN. I guess the job of a chinese "we will rule the world"-planner is a lot easier through western greed, than it should be.
If it was train lines including rail ownership I can see why they would want to drop out. Logistically that's a nightmare unless it's totally private.
Then again around here the rail lines are mostly owned by grain/grass farmer groups who ship product by rail and can load from their farm directly. Passenger lines that share the rails wait for those trains.
GE was a big player in the diesel-electric locomotive market, starting with the GE Universal series, then the Dash 7, Dash 8, Dash 9, and Evolution. The division was sold off at some point there, I think before the Evolution. Back in the earliest days the engines themselves were provided by companies such as Cummins but in the 60s GE started building its own prime movers.
As stated by another post, they built the trains but didn't own the track.
However, I'm not sure your conclusion about owning railroads is a nightmare is true. Berkshire Hathaway (Warren Buffet's company) bought Norfolk Southern in 2007 and it's done fairly well since. My understanding is that these are relatively stable businesses because the barrier to entry is large enough to stifle competition.
How much of this is due to changes in the nature of the economy vs mismanagement? In the 50s and 60s the largest companies were focused in manufacturing and oil. Now the largest are in tech because the economy is different.
GE is an interesting example because, as a conglomerate, I would think it's better poised to strategically change the focus of it's business...maybe that's the point of the IBM spin-off.
Apple is already on it's way to the trashheap. There's a reason why innovation has essentially stopped and now comes down to "a few megapixels more in the camera", while quality control - both in their hardware as well as their software - has taken a big hit.
I guess they will succumb faster than the old Xerox-age market leaders, because they are not focussed on consulting (= making other companies believe their constantly syphoning money from them brings value).
> How is literally designing your chips to a point where they could be desktop class to replace x86 not innovation?
That's more a sign that the company wants more profit by owning the top to bottom stack.
Perhaps they saw the existing chipsets as not delivering what they wanted or not scaling to fit demand, but it's still an investment not directly tied to product (their core competency).
> That's more a sign that the company wants more profit by owning the top to bottom stack.
Is bringing mobile/embedded and now desktop-class CPU design in-house really something one does as a cost-saving measure? Apple wants control over their entire stack, and sure, that relates to their business as a whole, but if this was solely about profit maximization surely there would be better strategies.
> it's still an investment not directly tied to product
I'm not sure I follow your reasoning here. Are you arguing it's not a direct investment because the CPUs aren't products in and of themselves, but rather components for other products? If so, I don't agree -- Apple's investment in, say, case tooling/manufacturing processes and equipment exclusive to their products is surely an investment directly tied to those products, right? The CPUs are likewise components exclusive to Apple products. That seems to me to be a pretty direct investment.
I don't understand this response at all. Does innovation not count if you're not doing it for charity? For several years I was reading articles about how Moore's Law was totally over and we couldn't expect any more improvements in chips, and then along comes Apple to blow x86 out of the water.
> but it's still an investment not directly tied to product (their core competency)
I don't even agree with this- Apple's core competency is the top-to-bottom customer experience, which they (almost certainly correctly) think they can improve by making their own silicon. But even if it was true, so what? Again, "investment not directly tied to product" doesn't make innovation "not count".
> How is literally designing your chips to a point where they could be desktop class to replace x86 not innovation? What other company is doing this?
Facebook, Google and Amazon are known to do their own server design; it wouldn't surprise me if any or all of them were doing custom processors (e.g. better virtualization features for their clouds, or processors that are more oriented towards their workloads). It doesn't sound like innovation, more like cost cutting; these processors aren't delivering a step change to end users, at best they're squeezing out a little more battery life. (By contrast e.g. that sapphire screen that was rumoured would have been innovative, because sapphire can do stuff that glass simply can't).
Those companies don't need third parties to develop anything so why would we know? Facebook was building custom server hardware for years before it became public knowledge that they were doing it.
You're right — we don't know. That gives us two options. Either we acknowledge the innovations we do know about and have proof of, or we use wild guesses and assumptions to dismiss those innovations.
I'll be happy to praise Google or Facebook for advancements in CPU tech if and when they show us such a thing. Until then, publicly available facts are that Apple is innovating in that field and they're not.
The very fact that we can't tell shows that this isn't any significant innovation. Even the part about handing out dev kits doesn't actually show anything - using an off-the-shelf ARM would create the same impact.
They're designing CPUs - something that many companies have done and many companies will do. Big whoop.
Both of IBM's current chip architectures, Z and POWER9, are indeed interesting.
Apple hasn't shipped their "desktop class" architecture yet.
Perhaps you are frustrated by the design constraints of low power mobile chips. Ok.
But if you're paying attention, architecture wise, it may be of interest to note that Apple's ARM chips, so far, have delivered good performance in their handheld applications by careful attention to sustained memory bandwidth. Competitors went with more CPU cores.
So there's some fun chip architecture to be had, even in 2020.
A desktop Apple architecture might use something like HBM for main memory, rather than DIMMs.
There's lots of room to innovate, out there in consumer computing.
Memory bandwidth is generally kind of needed to take advantage of more cores.
Last time I checked, Z had 500gb/sec; more than 10x Apple's. Kind of wish IBM had won processor wars. Generally speaking whenever I look at their mainframe doodads, then look at the hot garbage being slung over at Amazon or whatever FAANG shit hole, it makes me sad. The company with the best engineers is an also-ran that mostly sells consultant hours. Maybe they'll sell off the mainframe business independent of the rest of the horse shit and it will undergo a renaissance. Doubt it though.
IBM has been building chips since day one. I'd expect IBM to divest their mainframe business eventually. The distinction you are missing is that usually "finance-driven" companies don't usually decide to pour billions of dollars into bringing in an already outsourced component in house that they hardly have experience in.
Furthermore, I don't see IBM using the Z to "innovate" - They aren't pushing the mainframes to anyone other than people who are already buying mainframes.
>Z is a more interesting architecture by far than the turd Apple is shipping.
The Z, an architecture for people who are pretty much already buying mainframes, is more interesting than a desktop class chip with what will probably be a completely unmatched in performance/watt? I don't see how the Z is more interesting than a chip that is finally attempting to challenge the 30 year x86 dominance in desktop computing.
There's 2 trillion USD betting that you're wrong, and virtually zero betting that you're right (AAPL Short Percent of Float = 0.00% as per Nasdaq). Buy some puts and you'll make a killing.
Not sure why this is being downvoted, Apple’s hardware reliability has become horrible.
Every Apple device I’ve purchased in the past few years has suffered from a defect: AirPods Pro, iPhone X, 2019 MacBook Pro, iPad. And this doesn’t include Batterygate.
That's why. Even if they're lost some of their lustre (and, if we're being literal, could be "on it's way" in the sense that it was the most valuable company in the world and might've dropped a few percentage points).
Not only the past few years, heck, they launched a phone you couldn't hold properly and people lapped it up. That's not stopped their offerings not only being the best in their class, but often the only products of note (AirPods, iPads, Watch...).
Apple doesn't have to beat Apple. They just have to beat the best of the rest - and apart from perhaps Samsung and Huawei in phones, they're looking pretty peachy still.
Can you elaborate on that? I worked for IBM for a little more than a year and it was deeply disturbing, but I don't really understand what's happening under the hood.
Large companies allocate some percentage of their budget to "modernization" or "IT improvements" IBM tries to grab as much of that budget as possible and then to spend a little money as possible internally delivering results. So they end up selling "Watson AI" or implement a "24/7 Cyber Security Operation Center". They don't give a shit how useful or long term successful those products or services are. They only care about how big the contract is and how high their margins are on the contracts.
IBM stock is performing terribly compared to other technology companies from 15 years ago GOOG,AMZN,APPL.
They deliver a good story to other inefficient companies. Those companies can tell their board that the "new Watson AI will optimize their operations in Q4"
IBM's stock is down 30% since 2013 and is only up 10% from its post-dotcom crash 2000 number. They pay decent dividends so it's been an okay place to park some money, but it's the opposite of soaring.
There is a ton of inefficiencies in big businesses and governments and IBM and other service companies are preying on that. It's a viable business model, if a little scummy.
They bought the company I was working for. They turned everything upside down. Tried to force us to sign contrats that would make them the owner of our public contributions which lead to an outrage so they backed down. Later they did "patent minig" sessions where they tried to extract good ideas from people for free. They also shut down all projects and pushed their Watson shit on us. They didn't give a shit about company culture, and people in general so 90% of the employees who had even a tiny bit of ambition left for a startup that was created by people who left IBM after the acquisition.
That pretty much sums up my experience with IBM when they bought our company as well. I had a colleague who quit immediately finding out they bought us out because he had worked for them before. I gave them the benefit of the doubt but he was right and I left once they started to integrate us into the borg. Just about everyone ended up leaving not to long after either.
IBM used to be an engineering-first company. But people are expensive and engineers are some of the most expensive people there are. So when the bean counters took over IBM, they decided to get rid of their expensive people and replace them with cheap, fungible labor. Then IBM embarked on a series of experiments about how they could continue to make money with said cheap labor. This is the result.
Hard to create value when ditch or reduce power from the value creators and end up nothing but value extractors.
Companies taken over and run by value extractors (finance/business/marketing) over the value creators (engineers/product/creatives) end up in this stagnated, picked apart state when the grace from the value creation or product wears off.
Value extractors need to learn that you must first create value before you extract it. The reason value extractors originally were attracted to the project/product is usually that it has created value.
R&D has very little value to an MBA so it is cut, but long term it is all the value of the company. Value extractors kill the whales before they even can grow up.
Very well put. The same management philosophy happened to Boeing, and I think more quietly to many companies thought too big to fail in the last 50 years.
The difference on impact is interesting. Boeing is an important company because they are one of a tiny number of companies that makes the world's commercial airplanes. Arguably their transformation into a useless junk-heap of a company that can't build good products has been underway for a while, and that's a huge problem for aviation.
IBM is one of many, and their decline wouldn't really matter all that much in the grand scheme of things.
Since IBM bought RedHat, the parallels between IBM and Boeing here are too close to comfort. RedHat is potentially as vital to the Linux ecosystem as Boeing is to the (pre-pandemic) civil aviation sector. If IBM falls apart and RedHat vanishes, the impact on the Linux sector could be almost as bad as Boeing collapsing. Since Linux runs everything that's not a desktop computer or an iOS device, IBM-RedHat failing would be a very major problem for everyone.
This is one of the huge selling points for RH IMHO: Since they are open source if the vendor dies the product doesn't. Ceph is an amazing product with some really big customers, it wouldn't go down with the ship.
That said, Red Hat is doing well and I don't see them dying.
Explain how RH could vanish even if IBM fails/falls apart. I don’t see any scenario where that would happen, sorry. I’m not sure you understand just how entrenched RHEL is in ISP/telecom/Enterprise/finance/banking/insert-pretty-much-anything-here is..
RedHat revenues likely aren't enough to keep all of half-IBM afloat. It's vaguely possible that IBM could go into Chapter 7 if things go badly enough. That's the worst-case scenario I was speaking to.
If a company goes into chapter 7, the entire company is disbanded and its assets are sold off. In that scenario, Red Hat, as a division of IBM, would cease to exist.
Perhaps. My point is that Red Hat will still thrive under whatever parent company they wind up in. Red Hat would still be a thing. A very huge thing, and still a very huge moneymaker. Red Hat doesn’t disappear.
This is very true. It was even proudly stated in new employee orientation when I joined the company in the late 90's.
It was always sales oriented and engineering was something they had to do to deliver some of the things they sold. This may be the first CEO that was actually an engineer.
I think they have enough money that they no longer have to take a risk in research and development. Their strategy is to wait to see what companies are coming up or have a good position of a sector , then they buy them out. Less risk , less overhead, and lower salaries for them to not innovate internally . Plus they get a new client portfolio from the acquisition and new talent.
Having worked for IBM and being a client of IBM in the past with large gov't agencies , i can also tell you that part of their success is liability perspective from the client. I know many of gov't big wigs who simply hired IBM not because of their talent but because if TSHTF they covered their arses with congressional hearing or lawsuits by saying what more could we do than hiring the vendor that made the product.
> Is it just me or does anyone else feel over the decades they've been divesting some of the best (long term) building blocks?
IBM is old enough to understand the pitfalls of that approach.
In year zero it sounds great. Integration! Efficiency! And that works for a bit.
Then internal politics causes you to pass on opportunities that competitors take because taking them yourself would cannibalize sales in one of your other lines of business.
Then somebody else comes up with a better microprocessor than you, or better software, or lower cost manufacturing, and it's going to take your internal team five years to catch up. In the meantime all your systems are integrated with your in-house solution, so you can't switch, but the deficient in-house alternative makes you less competitive, so you lose all the customers who can switch easily.
Then you have to cut R&D because of the lost revenue and fall even further behind the competition, which leaves you in a death spiral where the most profitable strategy is to lock-in your existing customers and milk them as hard as possible as you circle the drain.
Or you can concentrate on doing one thing and doing it well, so that you don't risk sinking your entire operation as soon as you fail to execute flawlessly in any one of the six different major fields you've created an internal dependency on.
Yeah, successfully vertically integrated companies like Apple choose very carefully which things they integrate vertically and which things they don't. Apple silicon for example isn't truly apple silicon. They still cooperate with a company for the manufacturing. Apple still buys gorilla glass from Corning, etc.
And in the areas where they do compete, they pour in top dollar to make actually competitive products.
It's way too early to tell how Apple is going to end. They've only been where they are for a small number of years. What happens if Zen3 turns out to be significantly faster than Apple Silicon, or next year Intel gets 7nm right? Do they abandon it or do they fall behind? What do they do if Google gets worried about their market share and decides to start selling a top of the line phone for cost and marketing it on google.com?
And the opposite failure mode is just as bad -- you actually succeed in monopolizing the market and then get smashed by antitrust.
>And in the areas where they do compete, they pour in top dollar to make actually competitive products.
Apple TV+, Apple Music, Apple Arcade, Apple News+. Every single one of them were done to mask the profits of their Services Revenue. ( You could argue they provide decent value if you think they are competitive. )
I think that is where it all start to feel like Apple wasn't actually going in because they want to do better. They are doing it for numbers and finance.
And it irritates the heck out of me those money aren't being put or spend on better product and services ( on the actual product ).
IBM is a very capable company when it comes to technology R&D. But they've always seemed to struggle to develop those capabilities outside of high-end consulting work.
IBM had the technical chops to create the likes of ARM, nVidia, or any number of big tech companies. They just never seemed to have the leadership capabilities to get out of their comfort zone. I understand the idea of keeping a business focused, but Alphabet and MS don't seem to struggle with managing a diverse portfolio of companies.
The answer probably depends on where you define the "birth" of IBM - the founding of the companies that merged to create IBM, the date of the merger, or the date they changed the name and/or began producing business machines with the name "IBM" on them.
In the context of the thread, it's reasonable to say that both at 22 and 45 IBM had strong leadership (Watson Sr.) that successfully managed a diverse group of subsidiaries. Although in neither case are there any products like a modern digital computer involved.
IBM failed to leverage their silicon designs for driving down their cloud costs. As long as the IBM cloud runs mostly on third-party hardware they have no sustainable competitive advantage.
They offer their POWER machines as AIX and IBM i environments, as well as IBM z as LinuxONE VMs (under KVM instead of z/VM) with encryption everywhere for the security paranoid.
I suppose a z15 LinuxONE cloud offering would be attractive for them to offer because of all the built in observability, and also because those cores can be ridiculously oversubscribed before anyone notices.
As for pricing, they wouldn't need to pay their margins unless they eat into their other segments.
Running on third-party hardware is leveraging comparative advantage. Like Itanium, POWER is more expensive and there are very few reasons you would want to run on it. Definitely not a good fit for Cloud.
Full vertical integration isn't necessarily good business. Even Apple doesn't do its own manufacturing.
POWER is more expensive for us to buy, but IBM pays for it by the square inch of silicon. By that metric, it's probably very competitive with other server platforms. With OMI, they can also offer larger instances than anyone else while having more flexible tenant allocation because a single node can host a lot of tenants of different sizes up to the size of the full node, which could dwarf anything AWS and Azure can offer.
I've been trying to figure out whether the mainframe business is being spun off or retained as part of this split. Haven't been able to figure out whether IBM even manufactures this equipment. I know they outsource the chip fab now. I'm not even sure what the mainframe is called any more, they seem to change the name every couple of years. IBM Z? zSeries? System Z? Something with a "Z" in it I think.
Their latest is the z15 and their branding refers to IBM z (the same way they call their POWER lines IBM i, for the descendants of the AS/400, and IBM p, for the POWER boxes that run PowerVM, Linux and AIX). They build them mostly to order, in-house.
> We divested networking back in the ‘90s, we divested PCs back in the 2000s, we divested semiconductors about five years ago
Motorola followed that path. They sold off their computer business in the early 1990's. Analog electronics (On Semi), and then the semiconductor business (Freescale, now NXP). Finally, they split the government biz (Motorola Solutions) from the phones, and that was first sold to Google, and what remained then went to Lenovo.
Motorola was a gigantic powerhouse, and through mismanagement, is a shadow of what it was. Such a shame.
It's funny how back in 2005, IBM sells their PC/server division to Lenovo. Lenovo is currently the largest PC maker. During this time Dell has been bought and sold and re-bought.
Lenovo's margins are still razor-thin. The thing that bothers me most about IBM keeping POWER and Z is that I can't afford either, because the margins are eye-watering.
Fine, thin margins. So grow your market share and revenue, which is exactly what they did.
Since ~2005 they have ~5x'ed their revenue. Which is pretty significant if you consider one of IBM's big problems has been declining revenue. Proving the problem with the business wasn't the business itself but IBM management.
Clayton Christensen has written and talked about how Dell sold their business piece-by-piece. Each individual step seemed like a good move - it lowered costs and increased profits. Until one day the companies they outsourced to had it all and they started selling better computers for less money than Dell.
Speaking of their servers, their motherboards and chassis seem to be of their own design. Often times these layouts are pretty proprietary and designed exactly around the design of the chassis. They do some level of customization of firmware on the devices they go with, as there's usually Dell firmware on things like hard drives which integrates more with their own management tools. Arguably their software stack of actually managing fleets of their hardware is something they design, along with the actual remote access controller systems they put on the boards.
That was my first impression too. It was extraordinary that that comment was said positively by the CFO, rather than critically by a shareholder or journalist.
Apple, Google, Amazon are all proving the value of vertically integrated product lines, while IBM chooses short-termism.
They really had no choice about divesting PCs. IBM was on Microsoft's bad side so was being charged more for Windows than competitors, and PCs already had razor thin margins. After they sold off their PC business, Microsoft had no reason to charge extra for Windows and that became a viable company.
Nothing in this judgement shall prevent Microsoft from providing Consideration to any OEM with respect to any Microsoft product or service where that Consideration is commensurate with the absolute level or amount of that OEM's development, distribution, promotion, or licensing of that Microsoft product or service.
When IBM was competing with companies that got such "Consideration" and it couldn't, guess how that worked out?
IBM killed their own PC business by going with the MCA bus, and not allowing 3rd parties to make expansion boards without a license. And the PS/2 series was quite expensive at the time.
Vertical integration is high risk, high reward in that if each component in the stack is a market leader in their industry, the overall company becomes exponentially more valuable.
On the other hand if any component is non-competitive, the other components in the stack are still obligated to give that unperformant component their business. Which reduces the pressure to perform and causes the overall company to gradually become less competitive.
I think a good example of this would be Intel designing chips and also owning the fabrication plants. It's no secret that Intel has been to fabricate their chips for a while now.
I see this type of comment thrown around a bit, but a quick pass of the senior management suggests otherwise. https://newsroom.ibm.com/executive-bios? Not a whole lot of MBAs and a decent amount of engineers.
- Rometty (Chair): Technical degrees, held technical positions for first 10yrs at IBM, then in sales for the 90s, two decades working primarily with finance customers and she worked the PWC acquisition.
- Krishna (CEO): EE, Idea guy.
- Whitehurst (Pres): MBA
- Boville (SVP Cloud): Business degrees (UK)
- Browdy (SVP Legal): IP attorney
- Foster (SVP Services): Art degree, Accenture guy
You don't need MBA to have MBA mindset. A lot of computer science grads use their degree to get foot in the door and then move into management positions.
At IBM, to do anything you need to get permissions from 5 different semi-tech approvers. They have not done any real work in a while but read a few blog posts and come up with their own policies that contradicts each other. It is a pita to want to produce high quality code.
And that is just middle management. All those people higher up can define tech words but hardly anyone can actually explain the definition of those tech terms.
The loosening lens is a bit of strawman argument. I would hope someone at the level has experience with the business side of things... Pichai and Nadella weren't tapped to run their business straight after shipping a release.
Also, Howard joined in May (which is an important one...because this press release is about Cloud not about HR/patents.)
Whitehurst has a Computer Science degree (BS) and was using Linux on his personal computers in the 1990s and early 2000s, I think it's unfair to drop him in the MBA bucket.
Something about cherrypicking outliers compared to the droves of managers who haven't written code in 20 years and have been converted to the dogma of management
"... Costco does not hire business school graduates—thanks to another idiosyncrasy meant to preserve its distinct company culture. It cultivates employees who work the floor in its warehouses and sponsors them through graduate school." https://www.bloomberg.com/news/articles/2013-06-06/costco-ce...
It's perfectly fair. If they had hired all chefs into upper management, one could say "too many chefs and not enough engineers!", regardless of the quality of the chefs.
Only if you think "Master of Business Administration" and "Chef" convey equal amounts of business administration skill. The exective board page linked above is 22 people, even if all of them held MBAs could it really be that 22 expert business administrators is too many for a global company with 350,000 employees?
Their job is to make money; they don't care, and they are not paid to care about anything else.
Now... the question is, does someone with a different background care about the company vs making money in different proportions to the set of 'expert business administrators'?
I posit that yes, someone with a different background will have different priorities to simply 'make as much money as possible right now'.
Vertical integration is a hot term, but unless you have long term monopoly in the market, it’s more likely to be a losing strategy. If you bet on wrong direction, you’re in much deeper troubles, as you cannot switch to other vendor that went other direction (switching vendors is also hard, but much easier than rebuilding and catching up on your internal R&D).
And you lose power of market and economy of scale. Vendors can focus on developing their tech to be better, for everyone, as they get bigger R&D budgets, and you can just focus on improving things that are your true market advantage, not fighting in commodities market.
Note, that doesn’t mean that IBM is doing right thing. But vertical integration is extremely overhyped.
Yeah. Mainframes are arguably the most vertically integrated products there are and yet they’re a dying breed in a rent-maximizing at best industry than a growing one.
As a former IBMer, I completely agree with that sentiment. Little of what IBM is good at is sexy but that doesn't change the fact that they lead on many vertically integrated things. Turning back on those things will hurt them in the long run.
IBM still has plenty of sexy hardware stuff - mainframe and POWER (AIX not so much) are pretty impressive.
That z/OS has tens of millions of lines of code surprised me the other day. It's not like it needs to support 23 brands of mouse and dozens of GPU architectures.
There’s not much compatibility for old versions of the OS - IIRC anything older than the hardware itself is not supported at all. Backwards compatibility is for user code.
They're divesting lower performing (but not money losing) ventures in order to not hide the performance of their higher performing pieces. This is so they can show the unsustainable growth that stock holders (still) demand from corporations.
They'll look great on paper for a while as you say, at least until their cloud business fails for some reason. When you average growth over a whole company, you do mask high performing parts with low performing ones... the same is true of cash flow and revenue.
If you get rid of parts of your company that are solid performers but aren't doing as well now, then you're getting rid of some of your safety net in the hope you won't need it.
IBM's most impactful business (in terms of wide use) is probably their research labs. Many, many chips today use SOI and copper interconnect technologies. That sort of research doesn't apply much to the cloud, but maybe they're hoping their AI stuff will.
That sentence struck me as well, mostly because people continue to make tons of money in networking, "PCs" and semiconductors. It's not that they didn't "fit the integrated value proposition", it's that IBM has terrible leadership.
No bets needed for what band of clowns will lead the hip, "value proposition" part of the company of course.
Vertically integrated monopolies are inefficient because practically, what you really have in a vertically integrated monopoly is a bunch of separate companies, all following a single, centralized entity and paying tribute to that entity. There is an opportunity for profit here, for shareholders, but very little room to actually improve technology, provide utility to users. Every product in that monopoly becomes less of a computer, more of a mouse-trap to keep people in the ecosystem. If your monopoly has even a single component which can interoperate with other monopolies, then you're basically subsidizing a whole layer of infrastructure.
Plus this practice paints a huge target on your back for anti-trust action, as you are seeing now with the other monopolies. The bigger your monopoly gets, the more potential profit there is for whatever government agent can bust you up. This could result in promotion, christmas bonus, maybe even a corner office with a window. Very high stakes.
The pieces they've divested haven't been valuable as part of IBM. They've fit their new owners businesses better. Thus they've been more valuable with their new owners, which is why IBM sold them.
> A company with vertically integrated...seems like it could have such an edge
Yes but I guess it was the IBM board whom decided that they could better invest in the money with various initiatives. IMHO, they are now (and for ~15 yrs) only choosing a safe route, not an innovative route.
The parts of IBM are worth more than the whole, and many of the company's board members and investors realize that. They are getting the value of these deals, even if "IBM" is not.
I'm not a business person so forgive me if this is a dumb question. But if you have a company with an underperforming segment and you split it into two so you can spin off the worse half... what does that mean for the new company that represents that worse part? I can obviously see the upside for the business that jettisons the dead weight.
But the dead weight is a company too. Does everyone who ends up working there just sort of accept that now they work at a company with worse financials and prospects?
It's not really a "worse" part that's "dead weight".
Companies split when two halves just have such vastly different objectives and futures that, at an organizational practical sense, it no longer makes sense for the same board/CEO/management to be running them together.
Splitting them up lets both halves select boards/CEOs/management that is best for them, and pursue strategies that are best separately. The "underperforming" segment may now perform better now that it's free to use AWS/Azure/Google cloud tools instead of just IBM's... it can enter into strategic alliances it couldn't before... it can merge with another company that wouldn't have made sense before.
As for the people who work there... they're still employed so nothing really changes day-to-day.
But the main point is that this frees the "worse part", if you still want to call it that, to do what is best for it. It may very well turn out to thrive and be a huge success. It's still a normal business like any other.
If it were truly dead weight it wouldn't be spun off -- it would be shut down and everyone would be laid off. The fact it's being spun off or split means it's expected to be a viable business on its own. Nobody can predict the future -- who knows, it might outperform the cloud part long-term.
>> The "underperforming" segment may now perform better now that it's free to use AWS/Azure/Google cloud tools instead of just IBM's...
The contrary point of view is that this means that either:
1. crapIBM will need to pay betterIBM for access to continue using the ERP, QRadar, Remedy, licenses, etc tools they use today. This is better for betterIBM and worse for crapIBM
2. crapIBM will need to stop using betterIBM's tools, and have to quickly negotiate new licenses/tools and spend 6+ months of their first fiscal year just moving platforms (moving SAP has often been a 2 year failed IT challenge, good luck). This will make crapIBM continue to look worse, making betterIBM's leadership look good for divesting themselves of it.
When a company is spun off, oftentimes the parent company still continues to own a minority stake, and/or shareholders will wind up with shares in both.
It's in nobody's interest for "betterIBM" to succeed at the greater expense of "crapIBM". With so much shared ownership (at least in the medium-term, practically speaking), shareholders want both to succeed.
That's the whole point -- shareholders think both halves will do better as separate entities, and it's in nobody's interest for one half to exploit the other.
Surely your "crapIBM" will continue to have access to "betterIBM"'s tools at a reasonable price, but they'll also be free to migrate to better ones, as they choose, at the pace that is most profitable for them.
It's win-win because that's the entire point of the split in the first place. The two resulting entities aren't even competing with each other, they're in totally different markets.
I used to work for IBM. When working on customer engagements the services teams are required to pay for IBM software that it uses. This goes back to the consent decree with the Justice Department after the anti-trust investigation in the late 70s. So splitting up won't effect that.
Why couldn’t they just agree to let each other use the other’s tools for free / massive discount for some limited period, or even in perpetuity? It doesn’t have to be one company shafting the other?
> Why couldn’t they just agree to let each other use the other’s tools for free / massive discount for some limited period, or even in perpetuity?
A big point of splitting up is so that (in both directions, to the extent that it applies) cross-unit costs aren't baked into operations. Subsidies like you suggest directly undermine that.
Even if they 'spun off' businesses, they still have transfer pricing schemes among each and every subsidiary of Alphabet. This is just BAU for small and large organizations
> Interesting, Google spun off many companies under Alphabet umbrella, but essentially continues to provide base tooling/compute/IT support to them.
Those aren't actually spinoffs in the sense of what IBM is doing; "Google" was effectively just renamed "Alphabet", with its core business in a new subunit called "Google". They are all still within the same corporate ownership structure. Its an internal organizational change, not a separation into separately-owned organizations.
Sure, it's a bit more complicated, but the point here is that Waymo remains an Alphabet subsidiary, external investors are investing under that understanding and with full knowledge of Alphabet’s control of Waymo (which is why the blog entry you link to links to the Alphabet 10-Q reporting the external investments and the resulting “noncontrolling interests” in the subsidiary.
A “spin-off” within a common corporate umbrella is a different thing done for different reasons than a corporate divorce kind of spin-off like IBM is doing.
Sure, but you could do something to ease initial shock?
Like: We'll give you an 80% discount in the first quarter, and the discount goes down by 20% per quarter, eventually you'll either be negotiating your contracts with us like any other potential customer, or you'll have moved off to some other platform.
As a shareholder you may require the business to guarantee that every deal negotiated with customers and suppliers are defined on an arm's length basis or face negligence or wrongdoing.
Every holding has transfer pricing [1] as BAU, and I can assume that it is also the case for IBM
There is a lot of financial engineering that goes into situations like this and you have to look into it on a case by case basis. But often times investing in spinoff companies can be very profitable. In fact spinoff companies outperform the overall stock market - you can checkout the Bloomberg Spinoff Index.
The book How to be a Stock Market Genius covers situations like this and gives some tools to analyze them if you are interested in learning more about it.
Large conglomerates like IBM usually trade their shares at a discount because they're poorly managed due to the sprawling size. Breaking businesses with little synergies usually makes the separate pieces better managed and thus more valuable.
They have a conflict of interest between the groups.
The "Cloud/AI" group wants to sell the new buzzword products.
The "Infrastructure Group" wants to sell the low innovation commoditized services and products.
The sales people from both groups would be telling opposite stories on why you should go with them for your IT needs. So it is easier to split them up and let them compete in the market rather than compete internally . And it probably makes both markets bigger in the long run because they can focus and expand.
Not sure.. The business model is really hybrid cloud with cloud being the endgame. As a traditional mainframe customer you want your application to work both in house and in the cloud. If you can move everything to the cloud and it's managed for you, you don't really need IT services anymore.
They can be bought or they can buy other companies that are specialized in the same area for synergies. Also it is generally easier to manage smaller organizations so the underperforming half here could become a bit nimbler. Generally speaking it helps when people have some clear focus were it a company or life in general.
I'm not saying that these all are necessarily true here. Time will tell. And about the people, if the culture was bad before it would stay the same regardless. If it takes a turn for worse, then I guess it was inevitable either way.
I know a couple of people who are in the process of riding companies down, so to speak. They’re pretty close to retirement (if not already able to retire), they like their coworkers, and are comfortable where they’re at. They’re happy to man the ship as it slowly sinks. This might be the case for a good many IBM’ers on the “underperforming “ side.
Weirdly, I feel about the same but the downgoing part only started around 2015. We met once at a company you were doing due diligence at, so I happen to know that you are about 15 years older than me. Maybe it's just an age thing and we're getting grumpy? :)
After all, complaining about the state of the world decaying goes back to at least the ancient Greeks.
I was thinking of one of those, it's a shame they apparently did not say it. However, I recently learned that the Torah apparently also claims that each generation is more degenerate than the last so perhaps I can fall back onto that :)
Oftentimes it's more like a corporate equivalent of divorce.
There are distinct, often contradictory interests. Each half figures it's the other one dragging them down, which might be true completely, partially, or not at all. And it's clear who has their head in the clouds in this case ;)
The HP / HP Enterprise split a couple of years ago is another example of this. Their messaging at the time wasn't so clear, but it became obvious they were divorcing the successful printer/office segments from the struggling enterprise ones.
> But the dead weight is a company too. Does everyone who ends up working there just sort of accept that now they work at a company with worse financials and prospects?
I was on the HPE side - pretty much! This typically doesn't come as a surprise, though. The free swag with the new company logo makes it a little better, though.
What was awful was that HPE had some solid products and could have been a great company, but management at all levels was so bad. I was at an HP partner at the time and it was years of watching a train wreck as they muddled along running their acquisitions into the ground.
I was also thinking about HP, but a considerably earlier split, when Agilent was spun off in the late 1990s. I think the motivation was the same, to divorce the dynamic printer/PC segment from the stagnant electronics segment.
But many people at the time thought Agilent was more in line with traditional HP values than HP was, and over the long run, they appear to have performed better than HP.
It's not underperforming segment. It's just naturally lower margin business segment. Splitting it off to new owners and CEO's who are interested developing the business to different directions increases the value of that business.
IBM has done this before. They sold personal computer business to Leonovo in 2005.
It's more like dumping a great business making a lot of money to focus the company on the sexy hot thing with higher projected growth that will hopefully attract a much higher stock valuation.
> what does that mean for the new company that represents that worse part? I can obviously see the upside for the business that jettisons the dead weight.
As someone who used to do a bit of recreational "special situations" investing, I can say with some confidence that counterintuitively the worse part is often the better part, and the "dead weight" often soars after it is jettisoned vs the "good part" flatlining. Not always but it can definitely happen.
The reason for this is logically apparent when you think about the second-order effect of people's opinions on a stock valuation. Say IBM has two halves: "Cloud IBM" which is funky and "Boring IBM" which is everything else. As one company the valuation is the weighted average of everything everyone thinks about the funky part and the boring part put together and is therefore fairly boring overall.
So when you do a spinoff the funky cloud part should soar, right? Wrong. Or not always, anyway.
What often happens when you split a business into a good part and a "bad" part is that all the overinflated expectations of investors are concentrated in the funky part so at the time of the split it has a very high valuation and the boring part is massively oversold and undervalued. So after the split the boring part performs well even if it just phones it in because expectations are so low whereas the funky part needs to do amazingly just to meet the expectations of people who are already in the stock at a valuation that is too high.
> As someone who used to do a bit of recreational "special situations" investing, I can say with some confidence that counterintuitively the worse part is often the better part, and the "dead weight" often soars after it is jettisoned vs the "good part" flatlining.
Often, the “good” part is actually the high-risk, high-growth potential part and the “bad” part is the low-risk, solid returns part.
Exactly. And if investors have already priced in the high growth potential, sometimes even if the "good part" grows a lot it can be that it doesn't grow enough to justify the valuation.
Fair to add that this doesn't refute the structural logic of seperating the parts - if your business has two halves that are that different, a split can make total sense.
I read the article and it doesn't make sense to me, but I wouldn't expect it to, as I know next to nothing about business. I however expect this to be similar to the Siemens/Infinion Technologys split a number of years ago: there might have been administrative reasons, but at least as important was the appearance to potential investors. Siemens (and IBM) are huge, diverse, slow moving entities with comparatively stable outlook and correspondingly low expectations of gains, while Infinion (and the new former IBM Cloud entity) are younger, more specialized, riskier, but potentially much more profitable companies, which attract a different crowd of investors / investing strategies.
There is a very real risk that companies spin off completely dead weight (see Honeywell's spinoff of Garrett). eBay spinning off PayPal a few years ago is an example on the opposite end. Assuming the management team is acting in good faith, it usually is because the two divisions lack synergies and have different potential growth trajectories and paths. For instance, the fast growing division might not be able to spend enough money because investors view the overall company as a slow, stable grower while the stable division is upset that the fast growing division is sucking up its profits to grow. In cases like these, it might not be a dead business, but something like eBay.
Honeywell divested from the defense sector a couple decades ago, spinning off "Alliant Techsystems" and sending debt along with the new company. ATK went on to be successful, merged with Orbital Sciences as equals (2015), and then was acquired by Northrop Grumman (2018). Financial Engineering, as one commenter put it, is quite nuanced and interesting.
There's a lot of talk about how this is supposedly a good idea for both sides, but here's what actually happens:
The people working in the "lesser" part take a very close look at who the new management is, and what their market chances are. The most likely outcome here is "meh".
At that point, most career-hungry people who have contacts in the other side of the company start extending feelers, because it's better to be in a growth area than in a steady ship if you want to have quick career growth. The few who've also got contacts outside the industry weigh the rest of the industry for their prospects.
Meanwhile, middle management isn't stupid and knows this is happening. Large turf wars break out, everybody trying to secure the most interesting projects for their teams so they can attract the best remaining people. The resulting office politics drive most of the remaining people who have options outside to leave as well, because it's a cesspit.
At this point you have created a solidly mediocre company. It'll likely plod on for a long time, on a slow downward slope. Every calculates what comes first, implosion or retirement, and chooses accordingly.
Life is, for lack of a better word, solidly grey.
But sure, on paper it's a great opportunity for both sides.
Currently working in what some have called "crap" IBM. And you are describing the initial reaction amongst many of my colleagues. Except those in India. The general consensus is IBM will do as it has done for years. Instead of fixing problems and making things more efficient or better, the new "crap" IBM will simply ship allot more jobs to India to achieve profitability.
fwiw: I don't think there's necessarily a "crap" company coming out of this. That's what I was referring to when I said people will take a close look at the new leadership. Sometimes, a split makes sense. But, based on past experience, the balance of probability points to not getting a good leadership team, and things flow from there.
It does not directly answer your question, but an illustrative example is DuPont's spinoff of Chemours in 2015.
Chemours was loaded with "assets" like dangerous chemicals, and their accompanying lawsuits. (One phrase used in a later lawsuit was: "unlimited exposure for historical DuPont liabilities")
Chemours' market cap was initially valued at $3b and quickly crashed to $0.75b. But then Trump was elected, it started looking like the liability from dangerous chemicals would be less than previously believed, and eventually this company, which was designed to fail because of open-ended liabilities, was valued as high as $10b.
But the dead weight is a company too. Does everyone who ends up working there just sort of accept that now they work at a company with worse financials and prospects?
That was only announced this week. Something like this would have to be in the works for a long time, so it’s very unlikely that the H1B changes had anything to do with this.
Does IBM own some widely used APIs they could realistically start charging/suing for?
For example, SQL was invented at IBM, but it's been published in ANSI and ISO standards. Surely the formal standardization process precludes an Oracle-style attack on implementors...?
> Surely the formal standardization process precludes an Oracle-style attack on implementors...?
Surely is a strong word. Who knows where this train is going to end up once it derails? They surely offered up permissive patent licensing, and all of those patents have expired by now anyway, but would they have bothered to sign away copyrights that they didn't think they had? Copyright lasts 70 years from the death of the author, so while the patents are all ancient history, the copyright, if such a thing exists, would certainly still be active and there would be decades of infringement to pursue.
Patents that make it into standards are still fair game for licensing. If copyright is understood to apply to APIs themselves (not just the text of the ISO documentation), then why wouldn't a similar sort of licensing practice apply?
OS/2 1.x was co-developed by IBM and Microsoft. There are some resemblances between OS/2 1.x and Windows 3.x APIs, because many of those APIs were actually designed by the same Microsoft employees – for example, most OS/2 API calls starting with Win* have a similarly named Windows 3.x API call, just without the Win* prefix. (Despite similarities like that, the APIs are incompatible; they probably would have been more compatible if it were not for IBM's influence – for example, OS/2 and Windows use different coordinate systems in their graphics API, because IBM insisted OS/2 had to use the same coordinate system as IBM's mainframe graphics software, GDDM.)
Microsoft and IBM have cross-licensing agreements allowing use of OS/2 code in Windows and vice versa. Microsoft used this to include OS/2 compatibility components in old versions of Windows NT (newer versions have removed it); likewise, IBM used it to include a copy of Windows 3.x in OS/2 to enable running Windows 3.x applications. (The agreement did not include newer software they developed after their breakup, so IBM wasn't allowed to use the Windows 95 or Windows NT code in OS/2, nor was Microsoft allowed to use OS/2 2.x and higher code in Windows.)
So, the odds of IBM trying to sue Microsoft over OS/2 APIs in Windows is zero. It would be precluded by the licensing agreement between them.
Microsoft still owns rights to OS/2, I believe this is part of why IBM cannot release OS/2's source code to third party distributions of OS/2 such as eComStation and ArcaOS
I don't think Microsoft has copyright on the whole of the OS/2 source code, just components they developed. I don't know for sure, but I think it is likely that some components, such as SOM or WPS, contain very little or no Microsoft-developed code. New features developed after OS/2 2.x were developed solely by IBM, without Microsoft involvement – Microsoft was only involved in OS/2 1.x (and possibly earlier stages of 2.x development.) There might also be some components which IBM licensed from third parties (non-Microsoft), but they are likely just individual DLLs or drivers, easily separated from the rest of the code.
I think the real problem here is IBM, not Microsoft or any other third-party. There are significant sections of the OS/2 code which are only under IBM's copyright, and there is nothing legally stopping IBM from supplying the source code to those sections, but it doesn't want to. Also, regarding the sections co-owned by Microsoft, I wonder what the story is – did IBM ask Microsoft and get told "No" (or "Yes" but only under non-viable conditions)? Or did IBM never even bother to ask Microsoft about it? I have no idea, but my gut tells me the later may be more likely than the former.
Thankfully there is very little of the PC or AT legacy left in current computers. Even backwards compatibility with the BIOS is starting to disappear from PCs.
Are you sure? I thought Unix, for example, came from IBM APIs. Many crusty APIs underpinning our systems today originated from proprietary products that have been preserved through caked layers of compatible interfaces, like new cities built literally on top of old ones. Sure, maybe the only APIs that are left are stuffed away deep in some broom closet and we can just throw out the whole room, but how sure are you that the APIs shuffled away in a dark corner aren't vital components required to boot or something?
IBM never got Unix. There was this saying about AIX, “it will remind you of Unix”. Unix as such came from Digital hardware, although Digital as company had some reservations adapting it.
> IBM splitting itself up into two companies is kind of like when Netflix proposed to split itself up into its future-oriented streaming business and its dying legacy DVD business. Except to make the analogy work for IBM, imagine Netflix had no streaming business...
>The new company will have 90,000 employees and its leadership structure will be decided in a few months, Chief Financial Officer James Kavanaugh told Reuters.
>IBM, which currently has more than 352,000 workers, said it expects to record nearly $5 billion in expenses related to the separation and operational changes.
What does the rest of their business consist of that requires 250,000 employees? Or are layoffs in the mix here?
I think people who haven't worked in/around IBM struggle to comprehend the sheer number of products and services it actively supports and only a portion of that are mainframe products. There are many products that have 100+ engineers on them but might never even make common conversation for how specialized they are. Additionally IBM has a high headcount for supporting those products, with 24/7/365 phone/hands-on support so that can sometimes be almost the similar number of people as the engineers actually developing the product. Since the products are so specialized there are specialized support groups per product. It's definitely easy to have 150+ people per product (especially from the heavy acquisition style they had been doing pre-Red Hat) so the numbers quickly adding up. Many of these groups have enough organization to transition to a standalone company's product team if they could replace the HR, accounting, and other company pieces.
There is certainly also consulting and other groups of people too, but they were not the majority.
Mainframes are shockingly legit. Don't get me wrong, - they're the least sexy possible technology, imo. But they do _work_ in a way that I've rarely seen.
There's a tradeoff between flexibility and stability - the mainframe is just hardcore stable. Sucks to work on a lot of the time, but _damn_ if there isn't a reason financial institutions still do mainframe batch processing.
I would gladly take a z15 or two or three [1]. Ability to spin up any number of instances almost instantly, blazing fast speed between them... just super expensive and there has to be a business need to justify the support costs. People often mistakenly think this is old tech, but that could not be further from the truth. One could have their own massive VPS region in a box with much faster deployment of code.
I saw some old mainframes in a junkyard... considered buying them only to be told that someone that knew they were going to be sent there, purchased them before they even arrived...
I think it would be hell cool to have a mainframe at home :) Assuming it is not ludicrously expensive to keep it running...
Keep an eye out for a Multiprise 3000 from 1999. It's the smallest of them and runs on regular household electricity at 1300W. If you do find one, make sure it has the hard drives intact or it'll be a 400 lb. paperweight like mine :(
I recall for y2k IBM was selling replacement mainframes because the new one was faster and you would pay for it just on power bill savings in 2 years. That the old one would never get the updates to work after y2k was not really a factor in sales. The old mainframes were water cooled and very power hungry, newer chips (now 20 year old technology) were air cooled and used less power.
as a services and solutions provider i imagine they employ a lot of technicians for on site work around the world, and will require much less of them in a cloud environment. just a thought though, anyone who knows better please correct me.
Is there ever an example of this working out well? Either for the “good part” that is kept? Or the “bad part” that doesn’t get to keep the name?
The only one I can think of is Phillip Morris International, Kraft, and Altria that all split out of Phillip Morris. But I think that was because of all the tobacco litigation.
I’ve seen this happen quite a bit and it always seems to be a sign of a declining company. IBM splitting off Lenovo and disk units. HP splitting off enterprise/automatic.
These kind of transformations just seem like accounting tricks for restructuring debt away from some parts into others. It’s curious how this split has $5B planned in expenses. That seems really high.
Maybe Google successfully bought and then shot out Motorola and Boston Dynamics. Their Alphabet reorg didn’t seem to actually change companies.
Since there seems to be a lot of confusion as to what is being spun off and what is being kept...
Think of IBM as:
- Hardware
- Software/Cloud
- Services
Within "Services" you have everything from business/management consultants to application development teams to people who support IT infrastructure for clients as part of outsourcing arrangements.
It's that last group, Infrastructure Support, that is being spun off.
Speaking as a former IBMer. I understand IBM wanting to be a player in the cloud space but I'm not sure they ever will be. Like who seriously uses IBM Cloud? I know some big corps probably accidentally get IBM cloud credits with their large IBM contracts but does anyone actually choose IBM in this space?
Also a former IBMer. IBM cloud has really good compliance for "legacy type" customers. Things like banks and governments where all of the hoops discredit other cloud providers.
Much of IT spending is controlled by people that aren't technical and don't really understand what they're buying. No tech firm is going to choose IBM cloud but plenty of corporations will.
Anyone who has been connected to the internet knows the current cloud standards are set by AWS and Azure (maybe with Google and Oracle thrown in there as decorations).
Not really. If you’re eg a Retail corporation, you would not want to spend a dime on AWS. So it’s usually not just tech that’s involved in making these decisions.
IBM bought the best hosting company, at the time, SoftLayer, and transformed it into a the absolute worst.
I see where they’re going, if they’re trying to learn from what went wrong with SoftLayer. IBM culture destroyed SoftLayer, so if they want another go at cloud, they do need that business to stay VERY fare away from the traditional IBM and their consulting business.
Softlayer was a one trick pony. They had the best bare metals in the market. But their product was very poorly built and extremely hard to scale out or add features to.
This is not unexpected. Startups will optimize for a few use cases and deliver, get acquired on those strengths only for the acquiring company to realize that ... the tech isn’t easily scalable.
It also depends on what they mean by cloud. If cloud is their Softlayer acquisition, I am not impressed.
I would love to see them build out a real cloud solution, perhaps even using datacenters full of their z15's. I can't imagine anyone competing with that on commodity hardware in terms of deployment speed and connectivity speed between instances in the same location. It would be crazy expensive though and I doubt they would ever consider it and someone at IBM would have to write a web interface / API into the system that mimics the options of all the current cloud providers.
It seems smarter to focus on something the top tech companies aren't all focusing on, especially when you were late to the game and others have better engineering teams. There will probably only be a few winners in the cloud wars..
For IBM, that may not be true. They're a slow moving older company. Their primary asset is their brand (for older companies) and their distribution (their large network of large clients).
That's a perfect opportunity to clone something and sell
I think that's what they attempted to do with Watson and Watson Health, but it didn't take off the way they were hoping. It seems like they were early in the "AI" space.
Even if Microsoft or Amazon multiples are out of reach, if it's perceived as a shiny "cloud" company then it might get something like the average of a popular ETF or index which rides the "cloud" bandwagon, currently e.g. 3.5 on sales. With sales of 77 G$ in 2019, and 25 % lost to the spinoff, new IBM would get to 200 G$ of valuation, twice what it was before the announcement. (Are investors this gullible? Maybe.)
https://www.bloomberg.com/opinion/articles/2020-10-08/bm-spi...
IBM went from a great tech company into some sort of overly financially engineered Franken-firm that has tons of employees and yet nobody on the outside seems to know what they really do.
Throw in there various expensive hand-wavy marketing campaigns about AI, blockchain and quantum computing to add to that “but what do you actually do?” confusion. Case in point if I go to IBM.com I’m presented with a giant fluff PR piece about quantum computing.
This is so sad. They have gone from one of the best HW / Systems engineering companies in history to a lost giant managed by people with finance degrees and no love for the engineering that built them. At this rate, they will end up like GE and RCA.
Redhat is staying with IBM, not going to the spin-off:
>Besides the Red Hat portfolio and Global Business Services, IBM will retain its systems business, software portfolio focused on big data, AI and security, and mission-critical public cloud service.
That poster still hangs. There's a copy in the Annex also just down the street a little from Red Hat Tower (I took a picture last time I was there for training around this time last year actually).
But that's not RedHat "breaking free" as the parent comment sugggested. They're exactly where they were before, just with a slightly smaller parent company now.
question about the "smaller guys" in cloud (Oracle, IBM):
Do these companies operate their own data centers all over the world to make their cloud offerings work?
"Cloud" is kind of a magical handwavy way to say "don't worry about where the computers are, it will just work." With AWS and Azure I don't worry about where the computers are, because they're all over the world (and even under water, if you follow publicity stunts).
But where are the massive IBM/Oracle/etc data centers? Are they out there, and I just don't know about it?
Oracle cloud is quite a thing. It's in 4th place behind AWS, Azure and GCP and has significant presence. For example zoom is a big customer:https://www.lastweekinaws.com/blog/why-zoom-chose-oracle-clo.... I assume under the new tiktok deal, tiktok might run on the Oracle cloud.
I don’t know if this is the case here, but you can also rent space in someone else’s datacenter. Meaning the datacenter itself wouldn’t be run by IBM/Oracle, just some of the hardware inside it.
I was under the impression ( Not sure if it still true ) that AWS and Azure do not operate and owe all of their "own" datacenter, some of them were with Eqaunix ?
Bit late to the game. Only when the company is in existential crisis it knows how to act. First step: restore trust with potential customers after gambling it all away with dirty sales tactics.
IBM is always an interesting company. They seem to get dragged kicking and screaming into the next paradigm shift every 10 years or so, but they do still seem to manage to actually _make_ the pivot and stay somewhat relevant.
They're never a leader, but their staying power is impressive.
For me it’s just a hobby but plenty of businesses still use typewriters. Any time there is a international bureaucratic process like “Affidavit of intellectual property for imported electronics” when shipping between two countries that don’t have huge shipping volumes (say Ecuador to Senegal or whatever) you will see the typewriters come out because bureaucrats often only trust the true rubber stamped copies.
The IBM typewriters are rock solid enough that they’ll be a supply for the next several decades. There are mothballed Selecteics in attics that for $2-300 can be made good as new.
I don't understand. They type important legal documents on typewriters? Why can't they rubber stamp a printed one, and what do the shipping volumes have to do with it?
Let’s say you have a affidavit from your Ecuadorian supplier saying that the goods do not contain lead. It’s then rubber stamped by the Ecuadorian government office that does this. The Senegalese customs official says “this needs to be notarized and attested by the CEO of the supplier.” So now you have an official document that took months of work and lots of bribes to Get. You just take this document as is to get attested and notarized. So the CEO types his attestation on the typewriter and signs it and the notary applies their seal.
Large countries like the US, EU, China have solved this with automated processes but the smaller countries havent.
I guess their mainframes will continue slowly getting less and less important, but what about their Power CPUs? If they end up in the company with fewer resources, do they have a future?
Because investors hope that companies like Amazon will get a global monopoly on an entire giant segment of the economy, probably an "economic moat" reinforced by bogus patents or copyright or trademark claims (like Oracle vs. Google).
Think how the advertising business was formerly divided in thousands of small actors in each country (publishers) and now it's dominated by a handful of global internet companies.
aws's competitors keep popping up though (ibm included). on the contrary google was buying up everything, and there are only so many advertisers. there is no moat in datacenters, it's just computers and they are infinite
This is an excellent question that I’ve never seen addressed. Replying just to call attention to it in the hopes that someone knowledgeable HN’ers can answer. It seems like cloud would quickly become a commodity but I have no special insight.
All I hear is mediocre to terrible reviews. How are they staying in business? Admittedly I could just be hearing a one-sided story. Maybe there's some redeeming feature vis-a-vis AWS or GCP?
IBM had a successful hosting business before cloud (I.e. you could outsource your data center to them). AFAIK, that just rebranded that to “cloud” when AWS came along, despite lacking all the things that made it a cloud rather than a regular data center.
The people who use IBM cloud are the same people who used them for data centers in the past.
I work for a large company that uses IBM as part of our “hybrid cloud.” I am pretty sure we have an at least 9 digit contract with them. We have a private cloud by IBM (click2cloud) and IBM Bluemix. Honestly they are both bad. We also have azure and that’s night and day. But then again we even have oracle cloud, which I guess just means we like to step on mines in a minefield.
I think part of why we use IBM cloud services is we also use their consulting heavily. Everything runs on rhel and is supported by ibm.
I used to think the same about Azure. Most of the experience I have heard about it is not positive, yet it is comfortably number 2. I think the overall pie is huge enough. So you can have advantages in niches in product or good customer relationships and still do well.
Though, I haven't personally needed a compelling feature which AWS or GCP was missing, so I have never had to use any other product for work.
Azure is a 'best effort' attempt at a seriously important strategic vertical by a very smart company with deep pockets.
MS would throw zillions of dollars and blood at Azure to make it work.
MS has very deep enterprise relationships, way more so than Amazon or Google and in the long run, that may be the advantage.
A lot of 'fancy services' that we see are not 'the thing' that corps want: they want to spin up servers, basic networking and security, do things at scale. That's the bread and butter and Azure can surely provide that.
Being on the buying side of some of these things, even 100% aware that 'other offers may be better' it's extremely hard to fend off the professionalism of a well managed sales effort. It's even rational: entities that are so operationally effective at managing the relationship 'surely must have tech that works'. And it's a 'safe choice'.
I always assumed Azure would carve something out, IBM, not so much. Oracle, somewhere in between.
I am not dismissing Azure. Outside of AWS or GCP, the only IaaS platform I can think of using is Azure. MS certainly has the competency to run a good competitor alongside AWS and GCP in the long run.
I was just pointing out how easily we can misjudge things based on our echo chambers.
> MS has very deep enterprise relationships, way more so than Amazon or Google and in the long run, that may be the advantage.
I think this is something even their competitors realize. That's why the current and previous heads of Google Cloud were from enterprise software companies, Oracle and VmWare.
It doesn't really matter, tbh. Culture eats strategy for breakfast, and Google have a terrible partnership culture. FB are a little better, and I assume Amazon must be OK, but MS have a sales force that can actually sell, supported by an organisation that commits to products for the long term.
MS will do very well with Azure, but note that their cloud revenue is also Office 365 revenue (which I suspect is a lot higher).
Same as Oracle cloud, their users are organisations locked into long-term support contracts, who are offered sweeteners to use their clouds. Which of course only makes them more locked in.
We finalized the choice to use OCI for an upcoming project because they're the only major public cloud in the country we're deploying to.
That said, as a person who's coming from AWS, their demo and documentation have thoroughly piqued my interest. There's a decent amount stuff to like. It's got a slick UI, and the APIs appear to be comprehensive enough to cover our use case.
If it's like some areas of IBMs business it could be a We'll take your money but we don't actually care either way situation (e.g. try and buy a POWER machine)
The most redeeming feature is that normal cloud providers have a zero friction onboarding funnel whereas IBM seems to make you want to meet as many “sales engineers” as possible.
But I do know IBM has some interesting hardware available in the cloud servers. The Power architecture allows, for example, "1st-class citizen" status to GPUs w.r.t. main memory access: They can access main memory using NVlink. NVIDIA has therefore had some on-mainboard, non-card GPUs available mostly (solely?) in IBM power machines.
Obviously this is not enough for an entire cloud business but they're not just an "also-ran" cloud offering.
I worked at a company that used Softlayer before we were acquired and before Softlayer was acquired by IBM. We moved off to the acquirer datacenter, because that's what you do.
Softlayer was a very nice place to get bare metal hosting. You get a whole machine to do whatever on, they provide a solid network, and replace components when they fail (and you open a ticket). We didn't use any ancillary services for the most part, we had been using their included DNS, but switched off because update delays were getting too large and we didn't like the support response on that; we used their loadbalancers for one service for a few months, but it had worse uptime than the hosts behind it. I have heard their other ancillerary services were (are?) bad too. From what I saw, support in general was getting worse, but that could have been because of IBM takeover or because we were going from a top ten customer to an average customer.
I would consider them an option in cases where you want to run all the services you consume, but you don't want to run your own datacenters. They had a decent worldwide footprint, and post-IBM they got a lot more datacenters outside the US; that could be a big deal, because sometimes you just need a couple machines in another continent, and it's easier if you already are on board. Also, at least when we were there, private network traffic was free, worldwide, which is nice to manage replication for disasters.
If you're more cloudy though, and make use of integrated services, and small instance types with per minute billing, I wouldn't consider it. Also, they had that global routing issue earlier this year, which would have been hard (impossible?) to mitigate as a single vendor customer.
I absolutely can believe IBM being successful as a cloud provider.
I have considerably more doubt about them as an AI player. And their efforts to brand themselves as a blockchain player don't even seem to have merited a mention. Have they given up on that already?
Remind me of the Andrew's Intel story, when they decided to stop focusing on memory and moved entirely to building micro-processor, which worked out pretty-pretty well for them.
Looks like it's best of both word situation for IBM.
Very interesting. As I understand it, IBM consistently avoids high-competition low-margin markets and focuses on low-competition, high-margin markets.
This makes sense to me. Apparently, IBM is not good at high-competition/low-margin markets (and has never been), but they have been a huge R&D powerhouse for decades and probably remain so.
Now I think, the previous CEO should've done this split years ago.
My 3 years there made me sort of view it as the "top level of support" that IBM offers via global services. i.e. IBM is supporting some java solution for $$$ at a bank, they also employ some of the top JVM experts (i.e. the researchers) that if there's an issue, they can figure it out and provide a solution.
In our case they are milking the past - and doing a good job of it. My current consulting customer has some kind of cloud mainframe agreement with IBM as the result of an acquisition. I don't know the specifics, but I'm integrating data off of it. It's not easy to work with and a lot of tools don't support it. My initial suggestion was migrating to AWS RDS, but there are too many existing integration points and business rules coded to make this cost effective. The cost of migration is something like 20x the annual platform cost.
Edit: I should also point out that they provide stellar support and a great transition from on site hardware to their cloud service. They have always been great to work with - at an appropriately high price.
Good marketing that dinosaurs high up the corporate ladder fall for. I spend my day ssh'd into a Power 6 machine from a Windows 7 machine and using Clearcase and DOORs. I wouldn't wish this on my worst enemy.
> IBM will list its IT infrastructure services unit, which provides technical support
What does technical support mean here? The IT help desk services that they marketed heavily about a decade ago, or all of their on-premises related services?
Well, maybe the parts are worth more than the sum of the parts. I remember AOL and Time Warner merged, then dropped the entire value of AOL. (Though you could argue the market was still just irrationally overvaluing them as parts and adjusted down when they merged.)
"IBM, which has sought to make up for slowing software sales and seasonal demand for its mainframe servers, said it would now focus on open hybrid cloud and AI solutions"
It would seem to me that the latter would cover Watson.
In this case the rise seemed to come from the beginning --- 2nd chance queue usually takes a day or two and tends not to be newsworthy. I've had no 2nd chance notice (HN generally emails when resubmitting).
Several submissions earlier today of the IBM split by others didn't take. This one's success surprised my. HN is quite fickle.
It isn't clear to me what they're doing -- are they spinning off their cloud compute services because those are more profitable? That doesn't make any sense.
I believe the argument they are making is that their non-cloud units are so huge that they overshadow any progress they are making in the cloud space - if cloud profits increased 1000%, it would increase overall revenue by only a few percentage points, essentially. That makes their work on cloud look useless and unsuccessful, when in reality they could be killing it.
That's what they're telling us, anyways. Who knows the real reason.
With IBM Cloud, this is more a Cortés-like point of no return, sink the ships (not burned like popularly thought), only move forward from here, do-or-die type of move.
The other comment threads here are correct: IBM Cloud is struggling for relevance. There are some interesting ideas percolating around, but productionalized operations leaves a lot to be desired compared to AWS. They're in a very distant fourth or fifth place with the likes of Oracle Cloud. I'd possibly place IBM Cloud even behind Alibaba Cloud.
The general idea is that once IBM Cloud sheds the chains of Legacy IBM, IBM Cloud will really take off, since it is finally rid of that pesky, low-margin cruft dragging it down. That "cruft" is why IBM Cloud is even getting warm introductions and walking through the door at all, powered by high-levered sales spiffs to bundle IBM Cloud.
Post-split, IBM Cloud is going to spend massive amounts of time and money trying to get their foot in the door, to get back to status quo ante of easy introductions, swimming upstream against AWS, Azure, and GCP once they separate from IBM-not-IBM. IBM Cloud will also get dragged into brutal discounting wars against Oracle Cloud and everyone else's Me-Too Cloud. IBM-not-IBM will initially proclaim a "close partnership" with IBM Cloud, but once freed from on-high diktats to always use and shoehorn in IBM Cloud, they'll gravitate in a few years to a vendor-agnostic-but-really-only-top-2-or-3 partnerships. If vendor-agnostic cloud even becomes realistic in a revenue-impacting way by then.
I expect IBM Cloud will hold onto RedHat post-split, and will likely try to use RedHat as their warm introduction channel. I hope IBM Cloud surprises all of us with something good.
Is it just me or does anyone else feel over the decades they've been divesting some of the best (long term) building blocks? A company with vertically integrated silicon, compute, networking, cloud, AI, Enterprise etc. seems like it could have such an edge if only they had focused those engineering capabilities on consolidated, high-margin end products.
I see the other big players going the opposite direction. e.g. Google and Amazon are building their own silicon for an edge in Cloud and AI.
So-called SexyIBM is just another cloud company without a distinguishing barrier to entry. Sure, their growth will look good on paper for a few years, but when Cloud becomes commoditized (which I think is already happening), the capabilities which could have created the kind of real innovation that opens up whole new industries will have all been cleaved away.