Thread regarding IBM layoffs

Boen Your observations for TPP and TSS are spot on for profit, BUT you are not accounting for the amount of profit. TPP is SW and thus runs in the 85-90% profit range. Also note there is almost zero maintenance or modernization that has to be done to this stack. IBM will never divorce this even though it’s shrinking and attached at the hip to Z HW. TSS on the other hand has lower profit margins, of which over 1/2 of their installs come from zero profit HW models (scale out platforms), due to constant quite expensive technology investments. As such expect IBM to partner off or sell TSS as part of a bundling package that deals with the infrastructure divisions problem children. I expect IBM to bundle up products that represent approx 5 billion in revenue and partner them off. I say partner them off, as IBM would have a very hard time finding a customer who would want said products. Yes this all speculation, but the weak sister portion of Infrastructure is the scale out product line along with its hybrid cloud and services offerings. The weak sister of SW division is the legacy overlapping cloud products that compete with Redhat. NOTE the SW division will not partner off those product lines, but will just abandon them, and RA the staff. Yes it’s harsh, but that’s the streamlining that remains to be dealt with.

Your TPP and TSS observations are interesting in that both are very good money makers (profit wise) for IBM, but constantly shrink 4-7% a year (outside of the 1 time Kyndryl infusion) very much like GTS. Both have almost zero potential for any growth thus are the new millstones that will have to be addressed if IBM wants investment dollars for growth. Right now both combined at 6% shrink rate equates to 725 million shrink. Power and storage are also in the shrink club, but Powers shrink rate is higher and Storage is lower as it follows the cyclic pattern of Z. Combined Power and storage shrink on average 250-300 million a year. Add it all up, and it comes in just under the GTS shrink rate that they had to dispose of. Their only advantage is both products make money where as GTS just broke even

I think you will get a company more focused on the fortune 1000 priorities (mainly mainframe, AI, hybrid cloud, and application modernization using LINUX). You need to ask yourself why does IBM report TPP and TSS as separate revenue streams (approx 12 billion). I suspect it will make it easier to spin a good portion of them (non-cloud) off.

So do you financially engineer your way out of this quarter, or do you take fundamental action to change your trajectory. I suspect IBM management will use current market conditions as their excuse to change the trajectory

In other words, will we get more layoffs, or will we get more layoffs?

IBM issues their debt over various time frames and over various terms. NOTE IBM is expert at timing the markets. With that said, just go look at how IBM finances their day to day operations. It’s usually done via short term paper tied to LIBOR (90 days, 180 days, and 1 year) financed around the world. IBM tends to finance “big” purchases via tranches financed over 3-5 year terms. (Please note Redhats 36 month paper comes due in July and that’s going to hurt) The same can be said with IBM’s hedging strategy. As the dollar continues to strengthen, IBM’s hedging costs go up. Thus when interest rates go up, it impacts IBM’s day to day operations indirectly. Can IBM move payments around to financially engineer a quarter? Yep that’s why they have lots of paper floating out in the market around the world, BUT the trend in Interest rates definitely impacts IBM, and this quarter has a lot of non-favorable trends (interest rates, hedging rates, legacy shrink, Kyndryl one time impact shrink, and higher overhead and personnel costs) That’s a big wave of worry all breaking at the same time. So do you financially engineer your way out of this quarter, or do you take fundamental action to change your trajectory. I suspect IBM management will use current market conditions as their excuse to change the trajectory

@7slr - How did the interest payments go up? Did IBM issue floating rate bonds?

What Z giveth (300-400 million) interest rates, dollar fluctuation, and shrinking mill stone legacy (power, storage, TSS, TPP after Kyndryl, and cloud (non-Redhat) taketh. Overall interest rate fluctuations will demand IBM address some of the mill stones. The interest payments went from a billion a year to 2 billion in the last 60 days. That’s going to command some attention

It has been the same cr-p from IBM for the past 15 years... IBM always says they are in the high margin business and they don't want the low margin stuff... Unfortunately, for IBM every high margin business it has been in has become low margin, then IBM keeps on moving away from low margin business... this is how the Execs, by their total incompetence, are shrinking the company.

They are still hiring for WH It's all smoke and mirrors

@1lpp which group is hiring like crazy? And is it hiring or trying to hire, but can’t lure the people?

IBM a will continue to shrink mainly due to overhead costs (IBM has very high overhead vs other companies. It’s what causes IBM to fail when commodity products come into play). To over come the high overhead costs IBM has already told you what they are going to do (move upscale in pursuit of better margins). So let’s summarize what IBM has done over the last 3 years

1. They first acknowledged their current 2019 strategy (SW and HW) was a failure (20 consecutive losing quarters under Ginni is verification)
2. They bought Redhat as they needed a new strategy (it wasn’t about products as they can be adapted or modified, but it was about strategy. Note on purchase day (july 2019) IBM announced they were going to pursue a fortune 1200 worldwide strategy with Redhat leading the charge) That meant focusing on how to adapt current Redhat products to fit into, replace, or modernize the fortune 1200 install base.
3. They replaced Ginni She had zero vision for the new strategy and a losing track record so she got the boot
4. They sold GTS GTS was a mill stone losing 5-7% per year on a 20 billion install base
5. They reorganized into 3 divisions focused around implementing the fortune 1200 strategy. That means making offerings to your big customers around your “fit, adapt, replace” strategy. IBM has to offer the big boys HW to run on, consulting about their current business problems and objectives, and new ideas about how to modernize. Guess what the fortune 1200 strategy fits that perfectly for this niche customer install base. REMEMBER IBM gets 85% of its revenue from those 1200 customers so they will pursue that as it’s the golden ring.
6. IBM has dictated to the 3 divisions that they must feed the fortune 1200 strategy. That means the exec VP’s will pursue high margin opportunities at the expense of low margin opportunities and non-strategic opportunities. The CEO and CFO have pounded home this strategy over the last 3 quarters and in fact have raised their earnings forecast for the rest of 2022 (mid single digit growth has been raised to upper single digit growth)
7. Like it or not, IBM will shrink away low margin products, and non-strategic offerings as that’s the edict coming down from Armonk.

Yes by 10k on 6/23

@1cwt might be right. Something is brewing there.

Our group is hiring like crazy.

Some parts will grow, some parts will shrink. Like every other company.

I bet GBS is next on the chopping block.

Given the timing of IBM’s first restructuring (GTS announcement) It took the new CEO approx 7 months (april hire till October announce) to gather the data, and execute the plan. Kyndryl got spun off in Nov, so if we use the timing and the expectation of a continued restructuring (second shoe to drop) we should expect another announcement rather soon. As to how much shrinking needs to happen, I believe the best guess is using the revenue per employee model (approx 300k per employee seems to be the sweet spot for most multi-nationals) Yes the model can vary widely depending on the industry, but IBM has a history of 300k per employee as being their sweet spot