May 13th, 2009
IBM: Fuddy duddy as competitive edge
Updated: IBM CEO Sam Palmisano made a rare public appearance at the company’s annual investor powwow and delivered a simple message: Big Blue isn’t “overcaffeinated,” doesn’t chase fads and isn’t the most exciting tech company on the block, but it does deliver the financial results.
Palmisano (right) outlined the usual themes: Growth in the emerging markets, the strength of services and the annuity business model that serves Big Blue so well. But it’s clear that IBM’s dullness—for lack of a better world—may be its best asset. How many CEOs would make a mention of a 50 year old technology, acknowledge his gray hair and basically argue that boring is beautiful.
To wit:
- Palmisano acknowledged that the mainframe is 50 years old, but remains the most efficient way to compute in this market.
- Palmisano noted that he’s not a spring chicken, in fact he said “I’m an old guy.” But Palmisano carries a “been there, done that, seen this downturn before” vibe that probably makes IBM look more appealing to customers. He said: ”We’re not crazy kids, we’re not short term oriented. not running around here dressed in fads.”
- The IT market revolves around some basic blocks: “Analytics on the front end, preserve capital and consolidate data centers,” said Palmisano. “Competitors don’t have those capabilities. We’re not doing commodity stuff and the things we do have value in this particular market.”
Add it up and Palmisano’s company is on its game. And while Palmisano’s talk was comical in spots, it’s not like IBM doesn’t innovate. That stream computing announcement was an example of commercializing the work of its resident researchers. In addition, IBM gets the Web 2.0 vibe and has revamped its DeveloperWorks site to be a community.
Nevertheless, IBM is comfortable in its own skin, which includes a dash of being a fuddy duddy.
Overall, IBM’s mix of businesses mean its business model almost resemble what you’d find at an insurance firm (before those fools went off guaranteeing subprime mortgages and what not). IBM doesn’t have to stretch to make a quarter by selling commodity gear. The cash flow comes in like an annuity would. Half of IBM’s revenue is categorized as annuity.
Palmisano’s bottom line: IBM got ahead of the market changes and has businesses that enable it to navigate a downturn.
“We’re on our model. We feel we have the financial flexibility and don’t think we’re over exuberant. The economics aren’t great but we’re doing better than others. We haven’t slashed pay of our people (that’s an HP dig). We haven’t because we don’t have to. It’s the nature of the annuity-like part of our business.”
Palmisano repeatedly said the economy “is what it is.” And you could say the same about IBM. Big Blue isn’t as exciting as something like Facebook, but that’s just fine with Palmisano. He’ll just take the cash flow.
Update: IBM CFO Mark Loughridge outlined IBM’s 2010 roadmap. In a nutshell, IBM is sticking to its projection that it will have earnings of $9.20 a share in 2009. For 2010, Big Blue said it was on track to deliver its target of earnings of at least 2010 a share.
Also see:
- IBM takes its streaming computing software commercial
- IBM’s earnings better than expected on software, services; Hardware revenue thumped
- Algorithms everywhere: Can IBM automate business decisions?
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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