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.
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.