International Business Machines Corp. (IBM)

ptevans79 (80.71) Submitted: 10/09/06 9:34 PM : Start Price: $81.03 IBM Score: -57.00

The staggering size of this behemoth is going to keep this stock from going anywhere. This elephant ain't dancin' no more.

I could probably write 10,000 words on the difficulty of dealing with this bureaucracy both internally as an employee and, worse, externally as a customer; but anyone that's been around a big company knows how these things work.

One of the long term problems with the services business, at least in terms of the sort of consulting deals that IBM is looking to use to drive new business, is that often times the competition is led by an ex-IBMer. Well guess what happens when the competition is an ex-IBMer? They tell the customer, very convincingly, that IBM's proposal is 40% higher because of the 20 additional hands that have to touch the deal. Customers who have been frustrated by the IBM bureaucracy in the past don't have a hard time buying this.

IBM is struggling to build the vaunted high margin services business that is supposed to replace profits lost to the ever shrinking margins of the hardware business. The scariest part of the struggle is that we have yet to see the real downside that is going to happen as the high end high margin hardware platforms begin to disappear in favor of grids and utility computing. Seriously ugly numbers are going to start coming out as customers opt to replace ludicrously high margin mid-range systems and mainframes with racks of blades that carry profit margins less than half those of the dinosaur systems and worse, aren't necessarily manufactured by IBM.

I suppose there's always the software business, IBM's profit margins there are also ludicrous. Oh wait... open source... its going to drive a ton of profit out of the market.

On paper it looks great to be the biggest and the best in just about every area of the technology market, the problem is they have no where to go but down. Companies want to wring as much as possible out of every dollar they spend on IT and they want to have control over their technological destiny. No matter how much IBM has sung the praises of open source and open systems, the reality is that their bread and butter still lives in the land of vendor lock in. Embracing open source is just a teaser to try to get customers to invite IBM to stay. Hungry competitors who can actually deliver on their promises of openness and efficiency, because they don't have a business to cannibalize in doing so, are going to devour this elephant.

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