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Also, check out: ICC: More Armonk "Fudge," Armonk's
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"Now IBM Is Even 'Officially' Spineless", "Where Armonk Meets Wall Street, Greed Breeds Incest", "Some Insiders Cashed in on IBM Stock Buybacks", "Louis XIX of Armonk", "Wag the Big Blue Dog", "the new blue"   

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Big Blue Sells the "Backbone" of Its Global Services Strategy to AT&T

Now IBM Is Even "Officially" Spineless!

BLOOMBERG Newswires, May 8, 1997

"Advantis (IBM Global Network) gave IBM the backbone to its network (services) strategy," said analyst Bob Djurdjevic of Annex Research in Phoenix. "It still is the backbone and getting stronger all the time."

The preceding quote was published by Bloomberg Newswire 18 months ago to the day, when IBM bought the remaining 30% of its Advantis Global Network from Sears for about $450 million, "bolstering its fast-growing services unit," according to IBM executives Bloomberg also quoted:

"IBM said that owning all of Advantis will help it cut costs and make decisions quicker than it could with a partner. It also will help the world's largest computer maker leverage its size and varied products. IBM Chairman Louis Gerstner has said that IBM's advantage lies in its ability to offer complete systems of computers, telephone lines, software and maintenance to its customers. Its varied businesses help it provide this soup-to-nuts service."

The preceding assessment by IBM leaders in 1997 about the crucial importance of its network to its Global Services strategy echoed similar remarks by Dennie Welsh, the former IBM Global Services boss, when the Big Blue acquired its initial 70% share in the Advantis network from Sears in August 1992 (see Annex Bulletin 92-42, 8/18/92).

PHOENIX, Dec. 8 - What happens when you lose a backbone? You become spineless, of course. Now, some may argue that Gerstner's Big Blue has been spineless all along. Today, however, IBM "officially" became spineless when it sold to AT&T the business unit which not long ago was hailed by IBM executives and others in the industry as a "backbone" to Big Blue's IT global services strategy - the IBM Global Network (IGN). Except that today IBM called it "an effort to streamline operations," according to the Dow Jones Newswires.

So no more "soup-to-nuts" meals for IBM Global Services customers. In fact, not even a paper bag sandwich. After mid-1999, when this deal is expected to be completed, the sign at the IGN door will likely read: "Call AT&T."

What did IBM get in return for giving up its backbone? Five billion dollars in cash. "Which IBM can now spend on more stock buybacks," this writer told the Bloomberg Newswires today, speaking tongue-in-cheek. "Which Wall Street can now squander in some God-forsaken foreign country, like Brazil or Indonesia." (Bloomberg didn't print the comment).

IBM also got some other AT&T facilities management business (about $4 billion-worth over 10 years), while outsourcing 'a significant portion of its GLOBAL networking needs to AT&T" (about $5 billion-worth over five years).

And what will AT&T get? IBM's former backbone, of course. Plus about $2.5 billion in profitable annual revenues. By the time all is said and done, it seems quite obvious that AT&T shareholders and IBM competitors have both much to cheer about.

As for the IBM shareholders, well, they should be used to crying in their soup by now. If they hold on to their IBM stock, that is. The sellers should be all smiles, however.

For, it is becoming increasingly clear that Gerstner's "growth strategy" is - LIQUIDATION of IBM! First, by buying back the company's stock at inflated prices, rather than making computers and/or software, and thus diminishing the shareholders' equity (see Annex Bulletin 98-39, 10/28/98).

And second, by feeding the Wall Street beast all over again by selling off IBM's profitable businesses (Merrill Lynch and others who continue to recommend the IBM stock despite its record highs made a handsome fee on the AT&T deal), while keeping the losers, like the IBM PC Company.

So it turns out we were wrong, back in August 1996, when we first called the IBM chairman "Louis XIX of Armonk." We should have said, "Louis XIX of Wall Street." But that's now "Monday morning quarterbacking," or "20/20 hindsight."

Happy bargain hunting!

Bob Djurdjevic

The Winner    The Loser

AT&T Chairman           "Louis XIX of Wall St."

       armstron.jpg (7299 bytes)                      lvglouis.jpg (19334 bytes)

formerly of Armonk           currently of Armonk

Volume XIV, No. 98-43
December 8, 1998

Editor: Bob Djurdjevic
Published by Annex Research

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