This February, Warren Buffett admitted he had no faith in IBM. After accumulating a huge position, by 4th quarter of 2017 he sold out almost the entire Berkshire Hathaway position. He lost faith in the IBM CEO Virginia (Ginni) Rometty, who talked big about a turnaround, but it never happened.
Mr. Buffett would have been wise to stopped having “faith” long ago. All the way back in May, 2014 I wrote that IBM was not going to be a turnaround. CEO Rommetty was spending ALL its money on share buybacks, rather than growing its business. The Washington Post made IBM the “poster child” for stupid share buybacks, pointing out that spending over $8B on repurchases had maintained earnings-per-share, and propped up the stock price, but giving IBM the largest debt-to-equity ratio of comparable companies.
IBM was already in a Growth Stall, something about which I’ve written often. Once a company stalls, its odds 
of growing at 2%/year fall to a mere 7%. But it was clear then that the CEO was more interested in financial machinations, borrowing money to repurchase shares and prop up the stock, rather than actually investing in growing the company. The once great IBM was out of step with the tech market, and had no programs in place to make it an industry leader in the future.
By April, 2017 it was clear IBM was a disaster. By then we had 20 consecutive quarters of declining revenue. Amazing. How Rometty kept her job was completely unclear. Five years of shrinkage, while all investments were in buying the stock of its shrinking enterprise – intended to hide the shrink! CEO Rometty continued promising a turnaround, with vague references to the “wonderful” Watson program. But it was clear, Buffett (and everyone else) needed to get out in 2014. So Berkshire ate its losses, took the money and ran.
Have you learned your lesson? As an investor are you holding onto stocks long after leadership has shown they have no idea how to grow revenues? If so, why? Hope is not a strategy.
As a leader, are you still forecasting hockey stick turnarounds, while continuing to invest in outdated products and businesses? Are you hoping your past will somehow create your future, even though competitors and markets have moved on? Are you leading like Rometty, hoping you can hide your failures with financial machinations and Powerpoint presentations about how things will turn your way in the future – even though those assumptions are made out of hole cloth?
It’s time to get real about your investments, and your business. When revenues are challenged, something bad is happening. It’s time to do something. Fast. Before a bad quarter becomes 20, and everyone is giving up.
Besides their A.I. program, what unique proposition does IBM bring to customers? They have a huge services arm, but that is made of of mostly sub-contractors. They have a pretty crummy track record running large projects with many high-profile flops on the national and international level.
They treat their employees poorly, like most U.S. companies. The tired old “contractor good, contractor bad” hire and fire merry-go-round that every american executive enjoys implementing. Usually used to get a short-term stock bump or expense cut and look like a wizard. Of course that blows up the company in two to three years by gutting the intellectual capital of the firm.
To be honest I think most MBA programs are helping cause these once great companies to become ossified. That’s my theory anyway. Maybe that is sour grapes, but American corporate leadership is pretty horrible in general. I think boards need to rethink their criteria for the C-suite. Maybe gets some folks who have actually built companies or provided unique services before, instead of all the credentials. My two cents anyway.
I predict HPE and IBM will merge in order to create ‘synergy’ and other buzz words.
Great sarcasm Suzie Alcatrez. I love it.
Great comment MIke Meikle. Thanks
AFAIK, IBM did not build PC prototypes with double sided 5.25 drives let alone the brand new 96-track double sided drives. Those were available in much larger numbers than 64 kbit RAM, 125 thousand DSDD drives versus 36 thousand 64 kBit chips*. IBM had a planned set of options and only those were tested. IBM was not planning for future versions before release. * Those are 1980 numbers since I expect any decision on prototypes has to be made at least 6 months before release. Trying a shorter development cycle tends to result in badly broken products. Remember, it isn”t just the physical card; the BIOS would also need to be redesigned.
I guess that top management is not the same as top leadership. (Top) management is occupied with spreadsheetmanagement, irrelevant internal projects and steering by setting SMARTtargets (that will never be met). Top leadership is about having a vision, understanding trends and setting a course instead of targets.
Your columns may be concise; but are so revealing. Thanks.