IBM Is Still Working on Profitability, Even as Sales Growth Remains Stalled

Despite a marked inability to accelerate sales growth, IBM® is, arguably, moving, with some success, to lower operating costs by jettisoning losing businesses, along with those producing only marginal profits. On January 23, 2014, IBM announced the sale of its x86 server business to Lenovo. On February 6, 2014, The Wall Street Journal published an article by Don Clark and Spence E. Ante, “IBM Looking to Sell Chip Manufacturing Operations”. This article notes IBM’s efforts to spin off its chip manufacturing business. The article also mentions IBM’s intention ” . . . to retain its chip-design capability.”

So why is IBM jettisoning the same chip manufacturing capabilities Intel® is using to power its “build it with Intel” product offer? Clark and Ante mention some important losses in their article, including the chip manufacturing business for both the Sony PlayStation 4 and the Microsoft XBOXONE. I would also add to this list Apple’s Mac PC, which was redesigned in the early years of the new millennium and debuted in 2006 with Intel x86 chip architecture. Tellingly, the laggard in the game console business, Nintendo, still gets the chips for its consoles from IBM.

So I’m dubious about how valuable IBM’s ” . . . chip-design capability” will prove to be, at least over the remaining tenure of the present senior management team. After all, if IBM had won the Sony and Microsoft business for their latest game consoles, perhaps the consumer market wouldn’t have experienced the dearth of these products over the 2013 holiday season. Is it, perhaps, safe to say, the chip-design team is not producing the killer creative ideas they did in the past?

I think so. Would it make sense, therefore, for the public naysayers about Microsoft’s current condition, and its choice to replace Steve Ballmer with Satya Nadella, to turn their attention to IBM? Certainly IBM represents a business truly in need of a turnaround, and, I would argue, a major management restructuring. Would Alan Mulally like a move to Armonk, NY?

Disclaimer: I have no investment in IBM, but am long Microsoft

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

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