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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: ToySoldier who wrote (12797)	11/30/1998 11:48:00 AM
From: rudedog	Read Replies (2) \| Respond to of 74651

Toy - Let me give you a little background on why I think I may have some basis for commenting on IBM's technology and business. I started programming on 1401s in 1965. I moved to 1800s, 360s, and 370s in the early '70s. I was involved in the integration of General Motors' mainframe systems with their plant floor systems in the '70s and '80s. I wrote a number of ground-up systems for system 36 and 38. I was a consultant to Merck on the design and rollout of their AS400 systems in the late '80s. I was deeply involved in the early OS/2 development in '85 and '86, and continued work with the teams both in the UK and in Boca through '89. More recently, in the last 18 months I have provided technical consulting and peer review both to the RS6000 group and to the database group in Toronto (so you see I have actually been to the great white north!!). I worked with the Austin RS6000 team on both switch technology and clustering, until IBM shut that group down and moved the remaining operations to Rochester. I know how many key programs for future RS6000 development were just shut down, how many were trimmed back and what remained, at least as far as what Austin was doing. So I think I have at least a little basis for comments on IBM's technical direction. Throughout most of my professional career IBM was more than just a major influence on IT, they defined what a well-run IT shop should be. They were the most aggressive R&D and development force in the business. But that was then, this is now. Now on to some of your comments. IBM still makes (and plans to continue on making) a lot of money on your so-called "Legacy" services. The problem with that is that services are not really a business with an independent growth curve - that business follows the legacy business, with an annuity stream that follows the legacy sales curve out over 24 to 36 months, delayed in phase about 6 months. Sure it makes money but if the core legacy business decays (as most observers believe it will) then the service business will follow it into the tank, just a few years later. IBM needs to make that business stand on its own if it is to be a pillar of a 'new' business model, and they have not done much to move in that direction. By comparison, look at the former DEC service business. In 1993, more than 80% of the DEC service was related to the legacy VAX market. By 1996, more than half of that business was on non-DEC machines, and by the end of this year, less than 20% of that service work will be on DEC systems, and less than half will be any type of maintenance. IBM needs to do the same if they plan on sustaining and growing their services. the AS/400 business is strong Big is not the same as strong. The business model for the AS400 is falling apart. There is still a big base of users, there is a well-oiled channel to develop complete systems and market them, and that will take a while to decay. But the value proposition is collapsing in the face of products which do virtually the same job at 25% of the overall system cost. IBM's response, which is to try and turn the AS400 into a kind of expensive version of the general purpose midrange systems, just helps to highlight the poor value proposition. AS400 (and the 38 and 36 which came before it) were great product concepts, brilliantly executed, but the same could be said of the VAX. Those products are a part of the proprietary vertical model which is decaying across the board for every vendor in the business. AS400 is probably the strongest of that class pf products. That just means it will decay more slowly. And on the RS6000 - I am going to have to tell that to the boys over here. They will get a good laugh at that. As I said above, I have more than a casual notion of what's going on with RS6000 and I suggest you do a little digging before you get to laughing too hard. Once again you have quite nicely left out that evil "Legacy" component to your formula. I don't think I have left out anything. Including anything that IBM sells as software products, mainframes, applications, everything, their software revenue in 2Q98 was less than MSFT's. The gap will only get larger as MSFT pulls away IMO. If there are software pieces included in IBM products which are not sold as software and can not be broken out, the numbers would be pretty hard to measure, but I would be interested in any estimates of the volume and value of those pieces if they exist. As always, your posts are thought provoking - I hope we are entertaining and educating this thread with this somewhat OT discussion.