10:52 ET IBM (IBM): 71.60 +6.70 (+10.32%) Overall, last night's report from IBM is being seen as very positive for the market as a whole, and even being viewed as a "balance" point to Intel's weak report a couple of day's ago. However, this reading is too simplistic. There are some high level trend considerations to consider in IBM's report.
On the tech market: IBM's report does not support the idea that the tech market is rebounding. Although we have already heard some people state this interpretation, frankly, it is not in the report, if you actually read it. In fact, the report supports the idea that the tech market is far from rebounding - and is likely to remain stalled for as far into the future as anyone can see. On revenues: TOTAL REVENUE: DOWN 2% ($19.8 billion) - Software DOWN 2.9% (16% of total rev); hardware sales FELL 0.9% (15% of total revenue); Printers DOWN 3.3% (14% of total); Microelectronics (components) ROSE 3.3% (5% of total revenue.) The only big bright spot is services: ROSE 2.4% (45% of revenues). See the table summarizing this below.
On the tech market: EMC's (EMC) report provides further evidence that the technology market overall is not on the verge of rebound. EMC's sequential revenue decline of 9% simply can't be viewed as an indication of rebound. Add to that CEO Joe Tucci's frank statement "The IT spending drought got even worse...," throw in the Intel report, consider the IBM division-by-division reports, and the tea leaves add up to one thing: the overall technology market shows no signs of improvement on the horizon. Don't be mislead by the reports of a rosy future - for IBM they will come from being a services (outsource and consulting) company that also sells technology. In fact, IBM sees hard disk drives as a commodity product - and is selling the division to Hitachi.
Tech market shift: A higher level clue is visible in IBM's report: the technology market is shifting from value creation by the technology vendors to value creation from the application of technology. This is a theme that Briefing.com has been stressing for some time - ( the most recent discussion is the Stock Brief of 13-Aug-02 Technology Is Good Enough; Won't Be A Growth Engine ) and the IBM report shows it. Frankly, ex-CEO Louis Gerstner deserves far more credit than he has gotten for successfully leading IBM into this new shift - he saw this shift coming in his first year at IBM - and he got the battleship turned around in shallow waters. It is pretty clear, with nearly half of its revenues derived from services, that IBM is now more like EDS than the old IBM. Long term, this aligns IBM with the trends in the tech market - but people still view IBM casually as the biggest computer vendor in the company. They aren't - they are the biggest vendor of the end-result of computers - information systems.
Business line visibility: Another interesting trend in IBM's release - a clear view into the operating lines of the company. It shows that IBM understands the demand form investors into line-of-business visibility. This is a trend we pointed out in a Stock Brief of 23-Sep-02 What's Out/What's In - The Style Changes On Wall Street. We need more companies to start doing this.
Overall market impact: Bellwether IBM is having a positive effect on the overall market - but probably for the wrong reasons. Nevertheless, you should view it positively, - but mainly for IBM itself - do not make the mistake of thinking it is an indicator for other technology vendors - particulary hardware vendors. That's being pushed by some - but it is the wrong view.
- Robert V. Green |
