Thread regarding IBM layoffs

"There's a su---r born every minute." - Phineas Taylor Barnum

The full barron's article is now available to all IBMers on w3.

We are growing? Maybe management is.

2ult You are absolutely correct With less folks comes less revenue THUS IBM will seek out partnerships that avail it to keeping some of the revenue via IP licensing and still be able to cut head count. The overlapping jobs (eg Redhat vs legacy IBM in the SW arena) are a place to, lay-off without losing any revenue, but dumping heads. Finally if you are a bean counter, you will look at low margin pieces of the business that have a high labor content (TPP may fit this bill) The goal here would be to automate the labor and keep the revenue. When all is said and done, IBM bean counters have the computer model that tell them who to target to impact the business as little as possible (IBM management you better duck)

Yes, IBM still has too many employees around 250K... and it is acquiring companies right and left, so more long time IBMers will have to go.

I am sure AK's target goal is under 200K. Unfortunately, what he does not understand is that with 200K the revenue will also take a dive, and just shifting more work to India is not going to resolve the issue. So, it is a vicious circle with no end to it.

Most large companies can be judged on their efficiency (revenue per employee) Given IBM’s 54 billion, today IBM is running at approx 240k per employee. To be considered a leader in efficiency, you need to track towards 300-350k per employee Again given 54 billion, that tracks to 155-180k worth of employees. So you can shrink the employees to get efficient or grow the revenue. Given AK’s stated strategy, my guess is IBM is aiming toward 170-175k headcount. This number also tracks with IBM’s historical efficiency after their near death 1994-1996 experience

Sure..sure..I'll spare some bitcoins to get into another great bargain ...;)

Who cares about IBM ??? IBM is irrelevant in the world of 2021 and 2022. IBM is like the old horse and buggy company that was huge at one time in the 1890s but is now irrelevant in the world of 1910 with the Model T Ford...it's just history repeating itself. Like people, Corporations have a finite lifespan and IBM, due to it's ineptness, is nearing the end of it's after 100 years.

IBM has allocated 1 billion for 2022 restructuring If they take it all for headcount you are looking at 10-12k worth of heads. If they take it to partner off “parts” of each division, you could be looking at far more than 10-12k. Watson health, TSS, power and storage, TPP, and consulting of non-partnering / non-ISV sectors come to mind as poor performers or losing market share consistently. IBM knows they have to slim down. I would expect AK to swing the ax (layoffs) at management as they are way too deeply stacked

@mwm+1e4aUGj4

Q1 2022 will be a bloodbath... nobody is safe. Number of employees have to come down in every division... not to mention that IBM has been on a acquisition spree.

I have stopped working for this year, right at my target. I do not see the point to put in more efforts when there is no guarantee a job will be there next year. Resume is updated and out, looking to see what is available. Working on a few certifications (not IBMs!) as well.

So let’s do the math
Old IBM = 350k (IBM annual report)
New IBM consulting = 140k (IBM public report after Kyndryl spin-off)
New Infrastructure = 30k (IBM President from above)
Kyndryl = 88.5k (Kyndryl filing)
New SW = 91.5 (doing the math)
There is yet one more line item and that is layoffs
IBM spent 4 billion on restructuring with at least 3 thrown to headcount
Given 10-12k per billion that’s 35k which nets
New SW = 56.5k
So does 140 + 30 + 56.5 = 226.5 men a slimmer more efficient IBM, or does some slashing have to occur
I believe 15 has to come out of Infrastructure, 20k out of SW, and 10k out of consulting

For those that don't know - Barron's, Forbes, Business Insider, etc. have all turned into glorified blogs. The "associate editors" who write these "stories" are just freelancers who churn out tons of this cruft for peanuts.

[Too long to quote full article, as it exceeds maximum allowed length (9,000 characters), so first half quoted in above post; second half in this post].

In an October meeting with analysts, management laid out a blueprint for an upbeat future, without some of the bluster that had long characterized some of its leaders. Krishna’s plain-spoken approach even shows up in the company’s newly named segments, which now go by IBM Infrastructure, IBM Consulting, and IBM Software. Each unit has a clear leader.

The infrastructure unit, with 30,000 employees, includes IBM’s iconic mainframe business, along with an associated services business. Ric Lewis, a former Hewlett Packard Enterprise executive who runs the division, says there is plenty of life left in the mainframe business, which is used by many large companies for high-volume transaction processing. “They’re running the backbone of most major financial institutions and insurance companies,” Lewis says. “It’s an incredibly stable business.”

While IBM expects flat revenue from infrastructure over time, the business will have periods of growth as the tech giant launches new mainframe product cycles. One is due in 2022, when IBM rolls out its next-generation mainframes.

“There are certain workloads for which the mainframe architecture is much better suited” than the public cloud, Krishna says, referring to tasks such as transaction processing.

But the CEO says the core of IBM’s story is now software and services. Underlying both is the strong belief in the hybrid cloud and the idea that large enterprises will ultimately rely on a combination of public clouds (like Microsoft’s Azure and Amazon.com ’s (AMZN) Amazon Web Services), private clouds, and old-school data centers to run their businesses. IBM sells the software tools and applications to pull it all together, while offering consulting expertise to build and design the complex systems. At its recent analyst meeting, IBM forecast growth in the high-single digits for the consulting business and in the mid-single digits for the software unit.

Tom Rosamilia, who runs the new IBM Software group, says the strategy revolves around a world that now has three areas where most computing gets done: AWS, Azure, and on-premise data centers. “It’s up to me to connect those three worlds, to secure them, load-balance them, to get data in all of those networks, and to automate them.”

Meanwhile, IBM isn’t giving up on artificial intelligence, although Krishna concedes that Watson didn’t quite provide the expected payoff. “Coming out and saying it’s going to be its own unique application was perhaps a bridge too far,” he says. “I actually believe we’ll get there, but it’s probably another decade.” Krishna sees opportunity for AI across many applications, citing call centers and managing insurance claims, among others.

IBM Consulting, meanwhile, could play an increasingly important role as companies continue their digital transformations and look for expertise from outside. The unit is run by John Granger, who joined IBM in 2002 through its acquisition of PwC Consulting.

IBM’s rebound won’t be easy, as demonstrated by Wall Street’s disappointment with its latest quarterly results, announced just days before the Kyndryl spinoff became official. Revenue for the quarter fell just short of Street estimates, due in part to some customers delaying contract signings until they had clarity on the spinoff. (Some will be clients of both organizations.)

The stock fell 10% on the earnings news. It’s down 3% in 2021, versus a 25% gain for the S&P 500. And December-quarter results could remain messy, since the Kyndryl spinoff happened at mid-quarter. Meanwhile, Wall Street analysts have yet to update their financial models for the new, slimmer IBM, mainly because the company itself is still working on providing historical pro forma comparisons.

The lack of fresh estimates adds uncertainty to the stock, but also significant potential rewards. Some back-of-the-envelope math helps show just how cheap IBM has become.

IBM has said that, adjusted for the Kyndryl spinoff, it had 2020 revenue of $55.2 billion. Let’s assume that, ex-Kyndryl, it grows 2% in 2021—a conservative estimate. That would put the core IBM business at about $56 billion this year. If revenue next year grows 4%—a modest reading on IBM’s “mid-single digit forecast”—IBM sales would total $59 billion. At that level, the company’s shares are trading for just 1.8 times forward sales.

An earnings forecast is trickier, but Wall Street has been expecting 2021 earnings of $10.05 per share, not adjusted for the spinoff. Given that Kyndryl’s contribution to IBM earnings were close to zero this year, let’s assume the stand-alone IBM earns $10 per share. That gives it a price/earnings ratio around 11, or about a half of the S&P 500’s current multiple. The last time IBM was in growth mode, a decade ago, its multiple was in line with the S&P’s.

And then there’s the nontrivial matter of the dividend, which currently yields a generous 5.6%—the highest payout of any major enterprise tech company. That dividend looks secure. IBM has paid a dividend every year since 1916 and has raised the payout for 26 years in a row. It’s forecasting a cumulative $35 billion in free cash flow over the next three years. The dividend payment comes to just $6 billion a year, leaving plenty of cash for mergers and acquisitions, and reinvesting in the business.

“New IBM will have a growth orientation in revenue and business mix, with high-value recurring revenue, a higher cash-flow yield, and a much higher return on invested capital,” says Chief Financial Officer Jim Kavanaugh. “We just divested 25% of IBM’s portfolio, and shifted from commoditized services to high-margin, high-cash-generation businesses.”

Stephanie Link, chief investment strategist at Hightower Advisors, says that IBM is one of her largest investment holdings. Link started buying the stock a few months ago and is impressed by Krishna’s aggressive push to fix the business. She notes that IBM has made close to 20 acquisitions in his short tenure as CEO, in areas such as the cloud, artificial intelligence, security, and data analytics. Link says of IBM stock, “You want to own it for 2022.”

Mohan, the BofA hardware analyst, notes that expectations on the Street remain extremely low. “Any growth at IBM would be fantastic—the bar is pretty low, and it remains a show-me story,” he says.

He adds that many large-cap portfolio managers are underweight IBM shares—if more managers assume even a market-neutral position, that could create significant buying pressure for the stock.

Meanwhile, Krishna says he has “100% confidence” that IBM can become a growth story again. “When I think of this intersection between hybrid cloud and AI, and applying it to so many problems, there’s a ton of opportunity for us this year and in the years to come.”

[Too long to quote full article, as it exceeds maximum allowed length (9,000 characters), so first half quoted below; second half in next post].

By: Eric J. Savitz
Updated November 28, 2021 / Original November 26, 2021

A decade ago, IBM pulled off one of the greatest coups in the history of public relations. The company’s artificial intelligence platform, known as Watson, went on Jeopardy! and, over three episodes, crushed the quiz show legends Ken Jennings and Brad Rutter, all in front of the program’s largest TV audience in years. “I, for one, welcome our new computer overlords,” Jennings, who once won 74 Jeopardy! games in a row, wrote below one of his Final Jeopardy answers.

The stunt turned Watson into a household name, and raised expectations for the societal and financial impact of IBM’s AI business. Among other things, IBM thought that Watson had the power to improve medical research and diagnostics. But instead of saving the world, Watson became an albatross, symbolizing IBM’s lost decade. Since peaking in 2013, IBM (ticker: IBM) is down 21%, even including dividends, while the S&P 500 index has returned 255%.

Investors have understandably forsaken Big Blue, but it may be time to start paying attention to it again. IBM is repairing its reputation with a new CEO who is making serious and lasting changes to its structure and ambitions.

Arvind Krishna was named chief executive in January 2020, after years running IBM’s cloud unit. His appointment was reminiscent of Satya Nadella’s promotion to Microsoft‘s top job in 2014. A surprise choice, Nadella has engineered what could be the greatest turnaround in tech history, catapulting Microsoft (MSFT) from a dead-money stock to the second-largest company, by market value, in the world.

For investors who missed Microsoft’s turnaround, IBM could offer a second chance. To be sure, you’d be hard-pressed to find many on Wall Street who think IBM can reproduce Microsoft’s remarkable revival. Of the 19 IBM analysts tracked by Bloomberg, just six have Buy ratings.

But, in fact, IBM is starting to look like Microsoft Jr: It has a new leader, pulled from its own deep bench of talent. It has restructured its business. It has doubled down on the cloud and AI. And next year, it is likely to start growing again, for the first time in a decade.

One of Wall Street’s few believers is Wamsi Mohan, the hardware analyst at BofA Global Research. He says, “Microsoft is an interesting comp....I look at Arvind as a leader that could be as transformational as Satya.”

“There is an increased appetite on the Street to understand the trajectory of the business,” Mohan says of IBM. “If the stock starts to move higher, you could get a performance chase.”

It’s hard to blame Mohan’s analyst peers for not being nearly as bullish. Aside from a small gain in 2018, IBM has posted annual revenue declines for the past decade. Last year, the company generated sales of $73.6 billion, down 31% from its 2011 peak. Wall Street analysts haven’t yet updated their financial models for IBM’s information-technology services spinoff, but the company is forecasting annual mid-single digit revenue growth starting next year and running through 2024. A return to consistent revenue gains would mark a major turning point—one that investors could begin rewarding early.

If IBM proves that it can return to growth, the stock could see a gain of 50% or more in the years to come.

IBM began laying the groundwork for its recovery in 2020, when it announced that Ginni Rometty was retiring, handing the top job to Krishna, an IBM lifer who joined the corporation in 1990. Just as Microsoft had six years earlier, IBM looked to its cloud business to find a transformational leader. Before he became the boss, Krishna ran the cloud and cognitive software group, playing a leading role in the $34 billion acquisition of open-source software provider Red Hat in 2019.

Krishna’s plan to fix the languishing tech giant is clear: Sharpen its focus, revive sales growth, and boost margins. He is focusing on two areas. One is the “hybrid cloud,” based on the idea that no one public cloud works for every company. IBM’s software acts as the intermediary between a crowded landscape of public clouds, private clouds, and on-premise data centers. The other focus is artificial intelligence—this time with a more practical approach than what played out in the Watson experiment.

While IBM missed the earliest cloud opportunities, the company eventually realized that its software could be the glue that held various parts of the cloud together. “Until five years ago, everybody was saying that maybe one cloud is sufficient,” Krishna observes. IBM concluded the cloud-based world would always be more complicated than that. And it has been wisely planning for a hybrid future ever since.

IBM has strong relationships with financial-services companies, which were early to embrace the hybrid cloud. Krishna cites a banking executive who once told him, “I do not want to ever look my CIO [chief information officer] in the eye, and have him tell me, ‘Well it’s out of my control,’ because we’re depending on somebody else.”

IBM’s hybrid solution solves that vulnerability, while still providing the cost savings, productivity improvements, and better security that come with the cloud.

Krishna, meanwhile, has taken firm control of IBM’s own future. In early November, the company spun off Kyndryl Holdings (KD), cobbled together from IBM’s legacy business managing data centers.

Kyndryl operates in a crowded market that includes India-based outsourcers like Wipro (WIT), Infosys (INFY), and

Tata Consultancy Services (532540.India). It’s a competitive, low-margin sector—and a business that was a massive drag on IBM’s financial performance. (See “IBM Cast Off Kyndryl. Here’s What Investors Should Do With the Stock.”)

While Kyndryl will take a significant chunk of annual revenue from IBM—an estimated $20 billion or so—Krishna sees plenty of remaining opportunity for his slimmed-down company.

He says that annual global IT spending is about $3.6 trillion. Strip out PCs, smartphones, telecom services, and other hardware, and it’s still a $2 trillion market. Krishna thinks that 30% to 70% of that is the software infrastructure that sits between hardware and applications to manage, analyze, protect, and share data—a roughly $1 trillion addressable market. That’s the area the new IBM is targeting.

Now that KD is such a bargain, IBM should seriously consider acquiring them.

IBM has been engineering growth for decades. Profit is the impossible mystery for them.

Barron's is a farce The world knows IBM is a dog