Selling off GBS would be the death knell for IBM They are the guys who recommend Redhat, AI, and application modernization of the legacy (AK’s only strategy) Can IBM slim down GBS where they don’t act as a catalyst ABSOLUTELY, but selling them is not in the equation. Selling all of Infrastructure except for Z and it’s associated support structure makes far more logical sense. In fact looking at 3rd q who were the weak performers Power and it’s cloud (-25), TSS (-5) and TPP (-8) It doesn’t take a rocket scientist to see where IBM has to spend their restructuring dollars
21 replies (most recent on top)
@akfr+1ihdaUfK interesting comment in light of the DXC merger rumors…
Endgame for IBM is right around the corner, the company will be sold off in pieces if needed. The acquisition of Red Hat was only done to make IBM look more attractive so that it can sell itself. But even with Red Hat, it is not a done deal because the rest of IBM is such total cr-p.
The count down has started...
GBS is only kept afloat because of their water tight multi year contracts. Anyone who worked at GBS knew that customers couldn’t exit GBS contracts that easily without suffering tremendous penalties. No other outsourcing company does this because they aren’t worth it- remember IBM relies on past legacy to survive, most of those GBS contracts are with clients who had a relationship with IBM stretching back 20+ years. If you don’t believe me look at GBS performance relative to inflation - hint, it’s only “growing” because of the rapid pace of inflation over the past few years which is baked in to long term multi year contracts. If GBS were to be acquired, another company would have to uphold these contract terms so it’s a cash cow, but they know they aren’t gaining anything in terms of talent. So only the companies truly desperate for cash, such as DXC, CGI, HPE, would actually buy GBS.
The lists were built in July after it became obvious that FCF was going to be impacted by headwinds. The lists were refined in the beginning of August when the fed outlook became a little more pessimistic and the headwinds increased. NOTE IBM has also been actively shopping parts of IBM looking for a partner or outright sale to accelerate the restructuring. Remember all of these actions have to cover IBM for the next 6-9 months minimum, thus these actions have to gel with the longer term strategy of Hybrid cloud/Ai/SW modernization/enterprise. The play has been called, and it’s just working it’s way toward implementation.
Lists are being built as we speak (I already know I am on a list). Every org in IBM has been asked to cut people. So, there will be an announcement very soon, most likely before Labor Day.
Oh it’s about to change When have you seen the CFO and CEO signal so overtly
- CEO says Consulting has 10’s of thousands of turnover per year
- CFO says unexpected headwinds are impacting FCF
- CEO says IBM has to continue to move toward higher margin business
- CFO says revenue model is secure at upper single digits for 2022
- CEO says IBM only hedges out for a year and 1/3 of currency remains unhedged
Let me net this out to you “danger danger will Robinson” They are red flag warning that a 3rd q action is imminent, and you just need to be patient to see what it is. There is a 75% chance something gets announced before the end of august. There is a 99% chance it gets announce by end of Sept. Remember exec’s don’t forecast bad news unless they already have an action plan. I expect the reason we have not seen it yet is based on the fed and interest rates and how big IBM needs to go to address that
IBM is too big because it has too many managers that are not pulling their weight.
But it will never change, will it?
No IBM is not done, but rather still just too big. Hybrid cloud, AI / SW modernization, and enterprise is a “a niche” market, and IBM has to shrink down to the optimum size for the niche. IBM used to be all things to everyone. That drove it to 100 billion in revenue, but at least 50% of those sales were empty calories as there was zero profit after applying IBM’s high cost of operations. You saw IBM acknowledge this via dumping GTS, BUT they didn’t go far enough. IBM has to shrink yet another 25% - 30% if it’s to be optimized for its “niche”. It will not be pretty, but management knows this, and is begrudgingly working toward it. The 2nd shoe will drop soon for no other reason than they are out of time and maneuver room as FCF can’t suffer another warning.
Isn’t IBM done no matter what though?
If IBM doesn’t get rid of GBS now, it will be something else, because that is the model IBM has been executing the past 10+ years… divest, divest, divest!
3exz If you eliminate Consulting, you ki-l IBM. It’s as simple as that. Each division of IBM feeds the other divisions of IBM (catalyst model), but even more importantly each division of IBM depends on the other divisions of IBM (symbiotic relationship). They are all linked at the hip due to “legacy” and IBM’s monopoly of that legacy. That’s the absolute basic idea of AK’s go to market strategy. Eliminate the silo models that grew under SAM and Ginni, and build the catalyst model that helps feed the machine. AK calls it Hybrid Cloud, and it’s what got AK the CEO job. Cooperation vs competing internally, exploiting IBM’s monopoly (enterprise) sold the board. AK has bet the company on it, and so far it’s showing slow and steady results. Does Consulting need to shrink? Of course it does, but if you eliminate it, IBM is done as the monopoly fades away to commodity
"Because they grow at the rate of growth of the non IBM products out there."
That's the very reason why IBM doesn't need IBM Consulting (GBS) anymore!
Let's get rid of them.
Hilarious that people don’t realize that IBM consulting (GBS is dead thank god) is the growth engine for IBM.
Why?
Because they grow at the rate of growth of the non IBM products out there. I.e. they actually grow. They do also sell and service ibm tech too, but only the products which are actually differentiated which isn’t really that many.
The hyperscalers know that they cannot exist on Intel alone
Which is why they are also hedging with ARM.
They are doing just fine without any "help" from IBM.
pawn the bloated GBS division off on Kyndryl
"The hyperscalers know that they cannot exist on Intel alone"
That is correct. There is so much money spent by customers in Z, IBMi and other things,
and it is utopia to believe the Hyperscalers can convert all of that to Intel x86.
So, at some point if the Hyperscalers want to keep on growing they will have to make a move to by IBM... fun, fun, fun!
IBM’s ultimate goal is to slim Consulting down to just the catalyst part. (the catalyst part feeds the other two divisions and vice a versa) Everything else can go as it’s not part of the strategic plan. Once IBM is small enough, they will be absorbed into one of the hyperscalers as the “enterprise” part of the hyperscaler. The hyperscalers know that they cannot exist on Intel alone
Not to mention they very often recommend non-IBM products... they always claim they are brand/product agnostics. Get rid of them!
Reason for selling off GBS
why you ask
because they keep screwing up and ruining what little reputation IBM has left!
@xym+ it may be digestible, but why would they want that? Just for contracts? They already have those customers one way or the other. What else may they want?
You're missing WHY they would sell off GBS. If they do it (I think it's coming but not for another 3-5 years) it would be to make remaining IBM small enough to be swallowed by one of the hyperscalers. $57B is too much even for AMZN/GOOG/MSFT to swallow. Sell off Power, Storage, parts of legacy SW, and THEN sell GBS, you get IBM down to under $30B, it's digestible.
Keep on divesting IBM... one day you will have nothing left! Selling to oblivion... Bye Bye!!!