IBM

Just a quick note on IBM. This is not a usual investment for this board, but I think it is worth a look. IBM is finally moving in the correct direction. Note on the HDP slideshow, how it is given equal billing with the AMZN, MSFT, GOOG in terms of cloud data services. It is also being highlighted by NTNX for their data servers. IBM is making the right moves on the cloud now, in hardware and software, and is especially prominent in cloud data. The market isn’t yet giving it any recognition for this.

I’m not saying this is the same as AMD, which I was pounding the drum about early in the year. But I think IBM is a great low risk investment, with a nice dividend, that has a lot of potential to surprise big to the upside in the next year or so.

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It seems like you are arguing for IBM as a value stock or turnaround, which is somewhat off topic here. If I agreed with you, I wouldn’t object to the off-topic aspect.

But I think that IBM is neither, that it’s still a floundering elephant, and I apologize to real elephants for that metaphor.

https://www.cringely.com/2016/03/08/whats-happening-at-ibm/

I think Buffett’s sale of IBM is a strong message.

Even in its heyday, IBM made up for second-rate products (and third-rate services) with first-rate salesmanship. That’s harder to do now.

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IBM is neither, that it’s still a floundering elephant, and I apologize to real elephants for that metaphor.

Nailed it. The mainframe cycle will play out in another Qtr or two and IBM is going to be challenged to find revenue growth again.

As far as the NTNX, HDP news, those companies partner with all SI’s, cloud providers, etc. That doesn’t drive IBM’s cloud strategy.

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@EdGreay

IBM is… a floundering elephant, and I apologize to real elephants for that metaphor.

You’re welcome to your opinion, but insulting companies with animal metaphors doesn’t really elevate the discussion very much, and doesn’t convince (unlike politics). In fact, for me, such commentary reinforces the idea that a company is not respected in the market, which is actually a bullish indicator.

The article you sited is over 2 1/2 years old, which is a century in tech.It discusses the situation when IBM was headed the wrong way and misunderstood how to the succeed in the cloud.

IBM has reinvented itself multiple times and in the last 6 months it has been turning the ship around, and has made significant progress. I’m speaking from my experiences out in the field - they are getting new respect with what they are doing, especially regarding cloud data. Full disclosure - I also do have over a decade cumulative experience with IBM, both as a former employee, one of the architects of WebSphere, and also owning a former solutions partner consulting shop. This theoretically could “cloud” my opinion - I don’t think it does, but take it as you will.

My view is that a turn around is in the offing when the market realizes IBM is gaining cloud share. I also think it is a very low risk play - they are at a low valuation, and have a 4.3% dividend yield.

In my investing, I invest long term in high growth companies I believe in, and also invest shorter term in value companies where I see a catalyst for a turn around in market value. I’ve done very well on both sides - with MongoDB, AMD, and Pivotal being my largest investments.

I don’t want to over discuss this topic, since it off-topic for this board. Since many people on this board are very interested in cloud companies, however, I wanted to mention it for people interested in a cloud turn around story - giving back to the community that has presented some great ideas for me.

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last 6 months it has been turning the ship around

Outside of mainframe sales and some strength in systems division, where do you see the turnaround? How you define the turnaround?

My view is that a turn around is in the offing when the market realizes IBM is gaining cloud share

I hope with your “experience” you can see that market share gain on “SCAM” is basically cannibalization of existing revenues or in some cases they just reclassified certain things as “cloud”, for ex, in a legacy hosting contract, they are moving compute that hit EOL into some sort of cloud solution, but in truth it can show gain in “cloud” revenue but overall there is no revenue growth (actually negative revenue growth) and the margin is slightly lower?

they are at a low valuation

For a business with declining revenue, declining margins, it is highly valued in my opinion. FWIW, I think revenue will eventually decline to $70B run rate, with $9 EPS or at current price fetching about 16 PE, fairly valued for a business with no growth.

PS: For someone who hates animal metaphor’s and chiding others for using it in the same sentence you just used the word “bullish”, do you think it has nothing to do with bulls and bears? I think you are being overly sensitive or you are not able to channel your disagreement properly.

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SteppemWulf
I appreciate your comments and concur with you,
at the current price level of around $144 and a dividend above 4% what is not to like.
I agree this is not a Saul stock, but…
Erik

@Kingram

For someone who hates animal metaphor’s and chiding others for using it in the same sentence you just used the word “bullish”

Touche, that was funny. I have nothing against animal metaphors, in fact some of my favourite metaphors are animalistic. I just have a problem with people disagreeing without providing any arguments. In your response you provided arguments such as cannibalization of revenue - that is more valuable than simply disagreeing, no matter how cute the elephant metaphor may be.

Outside of mainframe sales and some strength in systems division, where do you see the turnaround? How you define the turnaround?

  • I have been involved in a number of blockchain POCs with my bank - IBM is a leader in enterprise blockchain and has initiatives with a lot of industry groups. Blockchain is early and not making much revenue yet, but it could be huge - we’ll see.

  • They are also doing very well with AI solutioning, and have a lot of mindshare with Watson.

  • They are also ubiquitous as IT cloud solution providers especially with older industries like manufacturing - IBM Global Services has a large cloud practice that will only grow larger, and they have their own Cloud Foundry implementation that is vendor neutral, and are continuing to create new products.

  • Their newer Power server chips and servers are also extremely well tuned for NoSql databases and AI - according to IT folk from VMWare and Nutanix senior management.

  • And of course they have their quantum computing initiative - they are probably the global leader in this, though when and whether it provides revenue is anyone’s guess - it is a moonshot.

They have a lot of irons in the fire, and if they show increasing growth in higher margin segments, their multiple will improve. Cannibalization of revenue is the standard “Innovator’s Dilemma” problem, and I consider it a good thing - higher margin, higher growth revenue will increase a company’s multiple as it is discovered, even if over all revenue decreases in the short term.

Anyway, this will be my last post on this topic - I don’t want to post too much on something that is off topic to the main investment ideas on this board. For people who are interested in cloud turn around stories with low risk, I think IBM is worth a look. Otherwise, happy hunting :slight_smile:

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Blockchain

Oracle is in the enterprise space and so is AWS. From what I heard, AWS is clearly differentiating them, wait for next magic quadrant to see this. Also, Azure and Google is getting into this space.

They are also doing very well with AI solutioning, and have a lot of mindshare with Watson

You are kidding right? IBM is talking about Watson for 9 years and what is their traction and revenue?

IBM Global Services has a large cloud practice that will only grow larger

This is what I talked about, they took traditional hosting and re-branding them as cloud and not much of it is truly cloud as in IaaS, SaaS, or anything. They are just IT support.

Their newer Power server chips and servers are also extremely well tuned for NoSql databases and AI - according to IT folk from VMWare and Nutanix senior management

What is the market share of Power chips? I know Google tried to build white box servers with Power chips last year, and I am not hearing about it anymore.

IBM is turning around for the last 7+ years. The problem in investing in these scenario is, either they become value trap, or if you wait for the signs of turnaround to be visible then they already ran up.

In one of the strongest IT spending market IBM is not able to get revenue growth, or get traction on any of their major initiatives. What would be their position in a declining IT spending scenario?

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What is the market share of Power chips? I know Google tried to build white box servers with Power chips last year, and I am not hearing about it anymore.

I used to work on SPARC chips at Oracle. Within the last year Oracle has completely scrapped that project – chips, systems, boxes, Solaris, everything Sun Microsystems related (except for Java) is gone. Did not matter how good the CPU was they could not sell it. IBM is going to have the same fate. No matter how good Power9 is I do not see a future for the Power Architecture. And that is a shame.

Bill Jurasz

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I have a tough time with IBM as a stock, but I come more from a hardware sales background and probably do not have a good enough appreciation for the SW side.

There have been articles hinting Watson is more show than substance, but perhaps that has improved since. They were certainly early with that, but didn’t turn it into $$.

At Nutanix trainings this week, they mentioned having the IBM OEM partnership for Power 9.
An interesting slide was showing the typical old-school UI for AIX and that it could be replaced with the smooth/easy Nutanix Prism UI.

There are accounts that are going to run their Power systems until they break, and I thought this may be useful for them. Not sure it is enough to help IBM stock, but wanted to mention it.

https://www.nutanix.com/ibm/

Further down you see whitepapers and I note that one is for MongoDB via IBM+NTNX solution. Same for Postgres.

Gain the ease and flexibility of an Enterprise Cloud with the only hyperconverged infrastructure for the Power architecture
Get the same great software experience as more than 9600 organizations in 145 countries get today with Nutanix
Start small and scale your infrastructure without limits by adding IBM Power® servers one at a time
Dramatically simplify infrastructure scaling and upgrades with one-click management, freeing IT staff to focus their attention on the applications rather than the infrastructure.
Eliminate expensive and complex SANs, and simplify your datacenter using built-in Power server storage resources.
Easily incorporate Nutanix Enterprise Cloud Platform technology in your datacenter and leverage your trusted IBM business relationship.

A pro-IBM online blog/mag writes about his hands-on NTNX+IBM experience pretty favorably here:
http://ibmsystemsmag.com/blogs/aixchange/may-2018/getting-ha…

The fact that there’s another platform and hypervisor choice when it comes to running AIX is a big deal. For one thing, it’s still more proof that AIX is here for the long haul.

Dreamer

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No matter how good Power9 is I do not see a future for the Power Architecture. And that is a shame

Yeap. Well said.

For one thing, it’s still more proof that AIX is here for the long haul.

Not sure how you are drawing that conclusion. But, here is how I see things. Tell me what new innovation that AIX is bringing that Linux is not offering? The reason Linux has become so wildly popular is because, traditional Unix vendors have stopped innovating or there is hardly any value they bring in.

COBOL is still in use, so some technologies die very very slowly, but in many ways they have died long back.