IBM has made some very good decisions, in particular realizing that huge amount of money that can be made in expert solveanyproblem services and sought to make infrastructure a cheap commodity so companies could spend more on services (i.e., investment in open source). So smart, and something I would never have been able to figure out without hind site.
On the contrary, they build specialized products for their clients; they just don't build consumer products. They build very complicated, extremely expensive products based on cutting edge research that they perform in their own labs, which is why this investment is solid.
I heard an IBM guy give a talk at a research conference recently, about a 1U rack system that processes 8 live feeds of traffic, automatically classifies vehicle color and type, and optionally registration, so you can ask queries like "show me all red sedan cars traveling north on monday the 8th". It was part of their better cities initiative.
As an example, this reminds me a bit about P4 (Perforce www.perforce.com). It seems to be not that well known as say git, or other versioning systems, but in reality it's widely used in the game development, and last I've heard google, Microsoft and other big companies do use it (or use some licensed source code based version of it).
Perforce is well deployed on variety of systems. Git is fine, but cygwin's version can get broken due to fork() not always forking (no one to blame here, the cygwin folks are doing an enourmous job to translate over).
P4 also comes with approachable UI (p4win (MFC), and the not so pleasant, but then again better P4v (Qt)).
The command line is one of the easiest things ever p4 has did. For large binary files it's very well done, there is good customization of how many levels of file log to be kept.
But the best feature it's is changelists. The CL (heh, not common lisp) becomes part of your language at work, such as - get this CL, or shelve this CL, unshelve that one. It's very clear to a lot of people (coders, artists, production) what it is, and how it works.
I'm still puzzled by "git stash" or push/pull here and there (granted I'm n00b, and it would take me a lot of time to progress).
P4 is like good action game, GIT is like hard-core RPG where you need to level all the time, and learn magic, collect artifacts (that is scripts, and .gitignores).
I have worked for at least one game development studio that uses perforce on a massive Unreal-Engine codebase. I have no major complaints about it - I'd imagine the primary reason it was used was for administration purposes (tighter control by an admin / senior level developer). You know, so us n00bs didn't wreck everything at every available opportunity.
I think that one of the reasons perforce is used at large companies is the audit log / permissions model makes it easy to meet certain regulatory hurdles.
It bothers me when people apply a new buzzword to an old concept. Calling things like HN and forums "Social Media" is no more descriptive than calling a garbage truck driver a "sanitation engineer."
I can just imagine less scrupulous investors saying, "Hey, look! That thing you're doing? It fits in my overly-broad buzzword category! Give me money for my Social Media fund!"
It's more like telling that a truck driver works in transportation or logistics. The thing is, of course forums and IM were here since a long time. But different developments have made people aware of it around 2005, it's gotten a lot more pervasive in everyone's life, and so there is now a category for it. The classification of new phenomenons often take a few years until someone can "abstract" it together and explain it. The fact that people here discuss together, meet, share makes it social, no matter what other people tag with that word. Every trend can be subject to abuse, for sure.
>It bothers me when people apply a new buzzword to an old concept. Calling things like HN and forums "Social Media" is no more descriptive than calling a garbage truck driver a "sanitation engineer."
But it's a social... version of media...
What exactly is wrong with using a properly descriptive term that is in popular usage? Almost entirely unlike your garbage truck driver.
Perhaps it would be helpful for all, if you could specify what in your opinion is "real Work"? We're all here to share views and we could learn something from what is at the back of your mind.
The first part is pretty on the spot, but the second part is stupid, wasteful and does not belong on HN since Social Media is productive (Facebook allowed me to get back in touch with some old friends that I haven't heard from in years). You don't have to turn out forks or dig iron from the ground just to be productive.
I agree that social networks facilitate communication on an unprecedented level and scale. The problem I see is that the users of social networks have become the product, being sold to the advertisers, rather than the other way round.
I think the point that the parent was trying to make was that it was useful (and still is) up to a point where we actually got the benefits from it (like in the example you mentioned), but people seem to be realizing that the rest of the "features" of social networks are simply ways to extract more metadata out of a person.
There are some really novel applications that have been born from the social networking movement, but this seems to be a minority compared to the endless amount of trash that is coming out in parallel.
I don't think Buffett actually cares about that. Also, Facebook produces attention to sell to advertisers, and that's been valuable for a while -- the social part is just a good idea we have right now for attention, which in the past was newspapers, radio, TV, web portals, search engines, etc.
Hmm, so reallocating a few billion dollars is going to fill the multi-trillion dollar output gap we've fallen into these past few years? No, the answer is no.
"Social Media" is just a buzzword for communications. I promise you that communicating over the internet is valuable and won't be going away anytime soon.
I think you're wrong, because "social media" is not a bubble. Actually, it's part of the real life. :-) And I don't know what Warren wants with this, maybe he's believing in another monopolistic move of IBM, which is not too smart these days.
Actually, I agree with you on the benefits from social media to the society. But for 5% of useful features, there is 95% of trendy/fashionable projects that do not have any benefits to the grand scheme of things, are really expensive (color?) and are driving workforce away from more important projects.
You're conflating useful with productive. Huge productive industries employing tons of people are built around things that are merely trendy and fashionable (pop music, LV purses, etc).
IBM is a little bit weird. While it's true that they don't build product, they're still milking those old LotusNotes, FIM, WebSphere (enterprise version) installation.
Those things will become more expensive to maintain through time.
The recent IBM offerings are all based on Open Source being re-packaged:
- IBM packaged Hadoop
- WebSphere Community Edition is based on Tomcat
- IBM HTTP Server is based on Apache
By utilizing open source being pre-packaged and charging for support, they basically can get rid of expensive Software R&D and at the same time probably make an in-road to SMB: use the software that you've been using but with IBM support behind it! (discussion regarding the quality of IBM support is left for other time but let me say this straight up: Microsoft software support has been far more superior in terms of speed and the quality of the response than IBM lately).
Having said that, IBM is also becoming some sort of SaaS for government agencies. In some places in North America, IBM machines are printing the local ID card (and probably Driver's Licenses as well). So when a resident lose their local ID card, they'll have to pay the Government certain amount of money and IBM takes a percentage of that.
Maybe Buffett and his co. saw a big picture of IBM strategy to become more aggressive in that market (SaaS for big enterprises) seeing that Big Data is all the rage these days. That's a bigger lock-out that nobody can escape for years and still charging money without having to upgrade or add more features to compel people to upgrade.
What I've noticed is Berkshire Hathaway public stock investments tend to fit two criteria -
First, does it pay a dividend? Yep, IBM does.
Second, is it integrated into the overall economy? I think of it as if imagining what would happen if the company just up and vanished over night. So railroads, power companies, this would result in a lot of other companies would have big problems.
Then of course there are all the other details like the companies finances, executives, and so on that you hear about over and over again in any literature about Berkshire Hathaway.
Consumer oriented companies dominate the news and books because all the inner workings are like a soap opera to the public. But, you can learn just as much from all of these other companies. Most certainly it hones your research skills since the details aren't being delivered to you on a silver platter.
I think you're right. My perspective of IBM is from what I read in IT related magazines/articles while investors's (Berkshire in this case) view it from a different angle that makes more sense for them.
Mine probably too detail and too narrow and may not paint IBM as a whole.
"Berkshire Hathaway" itself, the original company, was a textile manufacturer. Warren Buffet said this was a terrible business because what would be profit margins would just have to be re-invested in the company to upgrade the production capacity to keep up with competitors.
Solomon Brothers also comes to mind as one referred to by Warren as a "mistake."
IBM also contributes to many open source projects. Many major open source projects are staffed primarily by developers from companies like IBM. So this may just be what dev output looks like when a company embraces open source; a good thing.
"We will solve your problems for piles and piles of money. Usually not problems that require technical breakthroughs or research level computer science knowledge, but ill-defined problems that involve many stakeholders, much politics, and complex business logic."
They make their money as a professional services company (a model Buffett has no trouble understanding) that uses technology.
That is IBM Global Services, which is basically the same as Accenture, Cap Gemini, Wipro etc, IT outsourcing/offshoring. It's about half of IBM, by revenue.
Even so IBM's business model when they are not selling wetware involves selling expensive black boxes that are maintained, installed, and serviced by expensive wetware. Even though it makes up half of revenue, that doesn't mean the other half is not directly related to driving business to the wetware side.
I think the business model outlined above is correct in the global strategy sense, even if you looking at a few pie graphs makes you think otherwise.
IBM GS is tech-agnostic; they don't just implement IBM mainframe solutions, they'll take your money to do SAP, Oracle, whatever you want, same as any of the other bodyshops.
If they are tech-agnostic then they aren't in the hardware/software business, which was my original point. They are in the hardware/software business because it helps them take your money for the wetware side.
Right. IBM still invests in "technical breakthroughs or research level computer science knowledge" at well funded labs. The two biggest are at Almaden, CA, and Yorktown, NY.
Like any lab looking at fundamental science, it's hard to judge how much of that activity leads to profit. Some research groups do also make/sell products that are cutting edge, though, on a consulting basis. E.g. the storage group in Almaden makes insanely large custom storage systems for very big - often federal govt - clients.
problems that require technical breakthroughs or research level computer science knowledge,
They're not just a plain boring services company.
I'm sure that quite a lot of research went into Watson, and I think IBM is betting big on that technology. Potential applications are in healthcare (to quickly find an answer in all medical knowledge), legal documents analysis, and so on.
Revealing my ignorance on this topic: Why would IBM care who owns their stocks, assuming the specific shareholder doesn't try to take influence on the development/direction of the company?
Buffett only owns companies at a level where he can influence. Usually, what he wants is profit paid as a dividend, but it depends on his level of investment. He usually does not invest for growth -- he thinks IBM is under-valued, so he's taking a position.
He never met with the CEO[1] and in fact messed up the name.
It is in the realm of possibility (and quite likely) that he talked with people inside IBM. But I don't think they were really pushing for him to buy it. At least it doesn't appear that way.
On CNBC this morning, Buffet made it sound as if it was more about liking the value based on the annual report he saw in March. He's been reading IBM's annual report for over 25 years. He did some diligence, and then began establishing a position.
Buffett is famous for doing exactly that, reading company reports (and other research) for a really long time before investing(I would imagine he must have read IBMs even earlier than 1986).
He would read company reports, even if he had no plans to invest. It is one of his hobbies (not only a job).
He said he won't buy MSFT b/c he's close with Gates. If he bought and they announced a share buyback / dividend, people would wonder if he heard something from Gates. He sees no point in running that risk.
Not a MSFT fan myself but I have to regard Buffett's frienship with Gates as a pretty strong endorsement of him as a businessman.
I think, even if you include dividends, any money in MSFT has been completely stagnant for 10 years (and may have actually lost value). IBM stock paid dividends and nearly doubled in the same time period.
Hint: Watching CNBC doesn't make you a good investor, and throwing around the letters "PE" just makes you look like the worst kind of shallow, ignorant investor.
No experienced investor bases stock purchasing decisions off P/E ratio alone or even primarily, because the metric has absolutely no intrinsic meaning.
You may not realize it, but 6sigma just did the equivalent of walking into a programming discussion and shouting "goto is evil!". It displays a disturbing and dangerous disconnect from reality. As a rule, I don't try to sugar-coat my responses to the willfully ignorant, but in the context, I don't see anything uncivil about my reply.
Your response to Hessenwolf is great, and it's clear you know what you are talking about. I happily voted it up. But your reply to 6sigma is indeed uncivil, and I did my part to downvote it into oblivion. Since you apparently didn't intend to offend, I'll try to explain why people (me included) are having a negative reaction to it.
Starting off with "Hint" is condescending. Don't do it unless you intend to condescend, as this is uncivil. 6sigma offered a fact, qualified with "For what it's worth". You read a specific meaning into that fact, and are attacking him for the meaning that you have chosen to assign to his statement. This is impolite. Ask for clarification before assuming intent. And try to avoid insults like "worst kind of shallow, ignorant investor".
But please stick around and offer more solid comments like the one to Hessenwolf!
Earnings are strictly past performance. They are a fixed quantity that has no meaning other than "for X time period, the company had Y profit".
Price is based on a combination of assets (not all of which have fixed values), future outlook (which can change at any moment and is based on subjective judgements and irrational consumer spending decisions), scarcity of the stock, and even second-to-second manipulations by automatic trading platforms.
You are dividing an absolute quantity based on past performance by a complicated, ever-changing number based in no small part on future predictions and other subjective and human factors, and trying to extract some sort of meaning.
Without a framework in which to evaluate the result that incorporates many, many other factors that are far more interesting, all you've got is a number that assumes the current judgement of the market has some relationship to past performance.
Very helpful, thanks. And for what it's worth, this is what I (and xyzzyz above, I imagine) wished you would have said initially, two comments up, for a higher HN S/N.
Yes, helpful, but P/E is still important as a proxy measure for all of the things you mentioned. Current earnings are not a worse predictor of future earnings than many other more complex possible models. Under the assumption that future earnings will be at least reasonably predicted by current earnings, comparing the price as a multiple to that predictor is not a bad way to make a purchase decision relative to other assets. Of course book value is important, as are growth prospects, but book value (hopefully less so after IFRS4) is not really a great estimator of fire-sale value, and I would argue that growth is second order to earnings' first order and accordingly harder to estimate.
Very little or a lot, depending on your perspective. Long term investments look at strong projections and long term development, not in a single technology with high risk. But projects like the one you refer to is certainly proof of a strong and competitive R&D capability, which is something to invest in.
Buffett usually doesn't care about stuff like this. He cares about profitable business models that throw off a lot of cash in dividends. He uses those to make big infrastructure investments for long term continuous cash (like utilities). His letters to shareholders lay out his strategy in very plain language.
I am involved with IBM quite a bit as we are through to the final of their Smartcamp competition.
I have been so impressed by the way they deal with small businesses, always looking to form mutually beneficial partnerships to fill in gaps in their service offering, giving small companies access to huge markets they would normally have no chance of entering.
Really excited about their future, think the best is yet to come.
True (until now, I assume). But they must have liquefied some holdings, or did they front the cash for a $10B stake? It tops most of their existing holdings like $5B in Proctor & Gamble and $2B in Wal-Mart (which are some of the largest holdings they have on hand).
From The Snowball: "Buffett understood the basics of computers perfectly well. But he would not consider buying a technology stock at any price. 'When it comes to Microsoft and Intel,' he said, 'I know know what the world will look like ten years from now. And I don't want to play in a game where the other guy has an advantage."
This was, I believe, in 1999, so a) he was right at the time coughpets.comcough and b) it's been more than the aforementioned decade, so maybe he has a better idea of what the world looks like now.
