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FOR BLUE IT'S DIFFICULT, FOR MEME IT'S EASY

Thomas J. Watson started using the slogan "Think" while he was still at National Cash Register.  He took it with him to CTR, which became IBM.  It's still part of IBM lore.  "Think" has outlasted the typewriter, once a ubiquitous desktop symbol of IBM.  "Think" is a meme, an intellectual artifact broadcast by cultural intercourse.  IBM's meme opened minds and doors to computing.  Today a different meme is the harbinger of technological progress in the white-collar workplace.  It is the Staples slogan, "That was easy," and its corporate curio kin, a red button that says "Easy."

For more than a decade, customers for whom IBM was once the premiere supplier of end user technology cannot turn to Big Blue for this equipment.  They didn't leave IBM.  IBM left them, first selling its typewriter and low end printer businesses to Lexmark, then selling its PC operations to Lenovo.  Today, IBM's former customers get their desktop PCs, laptops, scanners and office printers from other vendors, often HP or Dell, sometimes directly, sometimes through resellers.  But these incumbents are not very secure right now.  They don't have the account control they had a decade ago, the kind of power IBM had a decade before that.  Customers have more freedom to choose suppliers then they used to, but they also suffer more uncertainty surrounding their choice of vendors.

Notwithstanding their current insecurities, HP and Dell (along with their agents) have capitalized on opportunities to supply upstream equipment, software, support and services, where they compete with IBM.  Particularly in small business settings, IBM has struggled to retain footprints, in part because its logo is no longer ubiquitous on office desktops.  Things are different in medium and large enterprises.  Among larger customers, IBM isn't likely to be displaced as the primary supplier of central systems.  Nevertheless, very often IBM is confined, retaining its legacy footprints and proprietary systems while other vendors win deals that boosting the computing, storage and communications capacity that surrounds or cohabitates with IBM's glass house iron. 

So, it's a mixed picture.  In some of these large user organizations, IBM is quite secure.  In others, IBM is well fed but awaiting Martinmas.  And, it turns out, Dell and HP may be vulnerable, too, on both the client and server ends of the wire, in goods and in services.

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DEFENESTRATION

In the 9th century BC, in northern Israel, Princess Jezebel, Phoenician wife of Hebrew King Ahab, was thrown from a window to her death by political opponents; her body was left to be eaten by dogs.  In the 15th and 17th centuries, in Prague, government officials were flung from windows by their adversaries; the incidents, by now called defenestrations, each started a war.  In the 21st century, all over the world, Windows clients are getting tossed out by end users; this is a disruptive and disconcerting trend to some, but ordinary, welcome progress to others.

This year, according to IDC, sales of tablets, in units, will surpass sales of portable PCs.  The operating environment of most tablets is either Android or iOS; Windows barely counts.  Most PCs run Microsoft Windows.  Apple's OS X has a slice of this market, and so, increasingly, does Google's cloud-oriented alternative to client-centric software, Chrome.  In another two years, IDC adds, tablet sales volumes will exceed aggregate shipments of portable and desktop computers.  But this isn't necessarily a disaster for PC makers, because unit sales of laptops and desktops will rise a bit during the next few years.  If IDC is right, tablets may be keeping a lid on PC sales, but they are not wrecking the PC business.

It's obvious that for some purposes tablets are replacing PCs.  It is equally obvious that tablets, which come out of the box with virtual keyboards and touchscreens, are not the best devices for cranking out spreadsheets, writing text documents, or developing slide shows.  When it comes to business applications, the jury is still out.  For now, and very likely forever, a mix of PCs, tablets, and smartphones will constitute the client base.

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DRONES WITH PHONES

Cisco TelePresence is a software system that gives functionality and character to a robotic rolling plastic column dubbed Ava 500.  Ava, ambulatory hardware from iRobot, is five and a half feet tall.  It is packed with media transponders and features a display showing a remote operator's head.  Ava has plenty of company these days.  Some roving devices bring doctors to distant patients.

And back in computing country, both IBM and EMC are testing machines that patrol data centers.  If this catches on, you might get a glass house robot yourself, or be replaced by one.

It's probably about time ambulatory robots caught on in the business world; they have long since become popular at home.

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IBM'S FIRST QUARTER INCOME DOWN 21 PERCENT AS REVENUE DIPS

IBM's year got off to a weak start, with revenue dipping 4 percent and net income plunging 21 percent.  The comparison to a weak 2013 should have been easy; instead, investors sitting in on the announcement saw IBM's bigwigs try to put the best face on results that boiled down to more of the same.  Nonetheless, the company's management seems to believe the rest of the year will turn out considerably better than the first quarter.  Some observers found this hard to believe as IBM, once the giant of the computer manufacturing world, disclosed that its hardware revenue fell 21 percent to $2.5 billion and pre-tax losses in that it calls Systems and Technology reached $660 million.

IBM's struggle in hardware spanned all its products.  The most severely hit was the mainframe line, with sales off 40 percent as MIPS shipments declined 19 percent.  Power hardware brought in 22 percent less.  X86 equipment garnered 18 percent less intake.  And storage subsystems revenue fell 23 percent.  In total, systems revenue was off 24 percent.  The remainder of IBM's hardware revenue, about 13 percent of the segment, comes from its chip business, which suffered a 16 percent fall in revenue.

IBM reported services revenue that was flat to down 3 percent.  By contrast, software revenue was up 2 percent.  While these segments are larger that hardware, the very sharp decline in hardware sales more than offset any positive outcomes elsewhere.

The impact of IBM's difficult quarter and of prior quarters with poor performance was reflected in a large change in the company's reported net worth, which fell from $23 billion to $17 billion between last year's first quarter and this year's first quarter.

IBM management believes it has a plan that will put it back on track towards higher earnings per share, reversing the 15 percent fall in EPS this quarter.  But it has not explained this plan to shareholders, and their initial reaction to the company's quarterly report was negative.  IBM shares fell 3 percent during the day following the release of the quarterly report.

Big Blue has a huge reservoir of good will, but even for IBM there are limits to investors' patience.  IBM will have to show better results in the very next quarter to reward the faithful for their trust.


IBM FIRST QUARTER 2014 PERFORMANCE BY SEGMENT

REVENUE
CATEGORY
EXTERNAL
REVENUE
INTERNAL
REVENUE
TOTAL
REVENUE
PRE-TAX
INCOME
PRE-TAX
MARGIN
Systems & Technology 2,391 168 2,559 -660 -25.8
Percent change -23.0 40.4 -20.7 -63.1  
Global Technology Services 9,330 241 9,570 1,345 14.1
Percent change -2.9 -2.8 -2.9 -15.1  
Global Business Services 4,483 141 4,624 628 13.6
Percent change 0.0 -21.7 -0.9 -10.6  
Software 5,661 932 6,593 1,918 29.1
Percent change 1.6 12.2 3.0 -4.7  
Global Financing 512 617 1,129 596 52.8
Percent change 2.6 14.1 8.6 10.7  
Total for All Segments 22,376 2,099 24,476 3,828 15.6
Percent change -3.8 9.4 -2.8 -13.7  
Eliminations/other 107 -2,099 -1,992 -848  
Total 22,484 0 22,484 2,980 13.3
Percent change -3.9   -3.9 -17.3  

The Eliminations/other line reflects an adjustment for activities that involve sales among IBM divisions that later yield sales to customers.
NM:  Not meaningful


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