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Confidential Annex Research Client Edition
Analysis of IBMs Fourth Quarter and Final 1999 Business Results
Slam-Dunk of Bunk!
Biggest Surprise: A Sharp Drop in Services Revenue Growth - Up Only 2%!
PHOENIX, Jan. 19 In our 30+ years of watching the IBM and the computer industry gears turn, we've certainly heard our share of BS from various IBM and other executives. But rarely has so much bunk been plunk(ed) on so many deaf ears by so few IBM executives shifting of gears, as was the case during this afternoon's 4Q99 teleconference with analysts. In terms of delivering pure bunk, the Big Blue(s) just scored a slam-dunk!
The man should be offered a PR job at the Clinton-Gore White House which constantly turns red into black. And vice versa. For, this IBM units result can be called a profit decline only compared to a bigger $992 million profit decline (i.e., the loss) which the IBM PCs incurred in 1998.
So the good news nowadays at Armonk is when the Big Blue stops hitting its head against the wall. But Joyce shouldnt rejoice too soon
As for the IBM servers, led by the AS/400 and the mainframes, they are being decimated. Server revenues are down 32%; pretax income is down 73%.
Joyce also said that the MIPS shipments of its S/390 systems declined by 38% in the fourth quarter. And that the AS/400 revenues were down significantly. The RS/6000 business volumes also declined, though not as much as those of the other two servers.
During the question and answer period, Joyce refused to quantify the rates of decline for individual server lines. Why? To keep gullible investors gulping down the IBM bunk? Because if they learned the truth - that hardware products which account for more than 50% of IBMs profit are in a tailspin, they may also bail out of the Big Blue stock?
If true, it should have actually made any sane analyst wonder about who would have drafted such a business model. Perhaps an official Fortune 500 mortician?
So how will the stockmarket react to such a heap of bad news from Armonk? Look for the IBM stock to rise tomorrow (Jan. 20).
Rise? Yes. Why? Because any sane analyst would have left the crazed Wall Street casino long ago. And because the remaining ones will probably rejoice tomorrow that IBM had not dumped any bigger surprises on them, as the now demoted former IBM CFO, Doug Maine, did last October (see Annex Bulletin 99-32, 10/21/99). After all, they have to protect their bullish forecasts, dont they?
The sin on Wall
Street, the street of sinners these days, isnt to sin.
Nor to report the spin as news, as IBM has just done. The sin at the
Wall Street casino these days is to be found out.
And our bet is that Wall Street wont want to find out just how
badly IBMs business has been hurt. Not
only by the Y2K problem; by its heavy dependence on the industrial era
dinosaurs - still IBMs biggest and best customers.
Against which we warned almost four years ago (see Louis
Annex Bulletin 96-42, Aug. 21, 1996).
In short, IBM is afflicted by an endemic problem, which isnt going to go away quietly as the Y2K issue will. Eventually.
Is there a
solution to it? There was.
Once upon a time. But the time has just about run out for it.
solution was to get rid of the Armonk emperor who wanted to centralize
everything, despite the global decentralization trend, as epitomized by the
Internet. And to break up the
company into smaller, nimbler units. Which
might have a better chance of competing with the likes of AOL or Yahoo.
As we have been also saying for almost four years now (see
Break-Up IBM! - Annex Bulletin 96-19, Mar. 20, 1996).
count on it happening any time soon. After
all, Louis XIX of Armonk hasnt exercised all of his stock options
yet, which are still worth half a billion dollars or more by todays stock
prices. And Gerstner has
stacked the IBM Board with his dino-pals who are evidently looking
after his, not the general IBM shareholders interests.
In addition, IBM
has spent the equivalent of several small countries-worth of GDPs (more
than six Albanias, for example), bribing the Wall Streets
king-makers through the stock buybacks - without creating a single job
or a product for its shareholders.
So buying the
Big Blue shares at this stage of the game at their current grossly inflated
prices is like accumulating fools gold for the sake of your
grandchildren. Its a sure
way of ensuring that your grandsons and granddaughters hate you.
Sooner or later
for the Armonk and Wall Street mints of fools gold, there are
plenty of fools hanging around the Wall Street casino these days, willing
and ready to empty their wallets into the pockets of the gleeful casino
owners and other fools gold dealers.
IBMs Americas fourth quarter revenues dipped 4% from the year before
(2% in constant currency). And
its European (EMEA) business dropped by 15% (6% in constant currency).
Which left the Big Blues Asia/Pacific operations as the only
geographic growth area with a revenue increase of 12% (2% in constant
revenues also were up by 12% - in current and in constant currencies.
For the full fiscal year 1999, IBM Americas revenue were up 5% (7% at constant currency); the EMEA business was up 2% (6% in constant currency), while the Asia/Pacific revenues grew by 19% (8% in constant currency).Happy bargain hunting!
NOTE: The print edition of this report contains additional charts and tables not included here.
Volume XVI, No. 2000-04
Editor: Bob Djurdjevic
5110 North 40th Street, Phoenix, Arizona
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