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FOR BLUE IT'S DIFFICULT, FOR MEME IT'S EASY

Thomas J. Watson started using the slogan "Think" while he was still at National Cash Register.  He took it with him to CTR, which became IBM.  It's still part of IBM lore.  "Think" has outlasted the typewriter, once a ubiquitous desktop symbol of IBM.  "Think" is a meme, an intellectual artifact broadcast by cultural intercourse.  IBM's meme opened minds and doors to computing.  Today a different meme is the harbinger of technological progress in the white-collar workplace.  It is the Staples slogan, "That was easy," and its corporate curio kin, a red button that says "Easy."

For more than a decade, customers for whom IBM was once the premiere supplier of end user technology cannot turn to Big Blue for this equipment.  They didn't leave IBM.  IBM left them, first selling its typewriter and low end printer businesses to Lexmark, then selling its PC operations to Lenovo.  Today, IBM's former customers get their desktop PCs, laptops, scanners and office printers from other vendors, often HP or Dell, sometimes directly, sometimes through resellers.  But these incumbents are not very secure right now.  They don't have the account control they had a decade ago, the kind of power IBM had a decade before that.  Customers have more freedom to choose suppliers then they used to, but they also suffer more uncertainty surrounding their choice of vendors.

Notwithstanding their current insecurities, HP and Dell (along with their agents) have capitalized on opportunities to supply upstream equipment, software, support and services, where they compete with IBM.  Particularly in small business settings, IBM has struggled to retain footprints, in part because its logo is no longer ubiquitous on office desktops.  Things are different in medium and large enterprises.  Among larger customers, IBM isn't likely to be displaced as the primary supplier of central systems.  Nevertheless, very often IBM is confined, retaining its legacy footprints and proprietary systems while other vendors win deals that boosting the computing, storage and communications capacity that surrounds or cohabitates with IBM's glass house iron. 

So, it's a mixed picture.  In some of these large user organizations, IBM is quite secure.  In others, IBM is well fed but awaiting Martinmas.  And, it turns out, Dell and HP may be vulnerable, too, on both the client and server ends of the wire, in goods and in services.

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DEFENESTRATION

In the 9th century BC, in northern Israel, Princess Jezebel, Phoenician wife of Hebrew King Ahab, was thrown from a window to her death by political opponents; her body was left to be eaten by dogs.  In the 15th and 17th centuries, in Prague, government officials were flung from windows by their adversaries; the incidents, by now called defenestrations, each started a war.  In the 21st century, all over the world, Windows clients are getting tossed out by end users; this is a disruptive and disconcerting trend to some, but ordinary, welcome progress to others.

This year, according to IDC, sales of tablets, in units, will surpass sales of portable PCs.  The operating environment of most tablets is either Android or iOS; Windows barely counts.  Most PCs run Microsoft Windows.  Apple's OS X has a slice of this market, and so, increasingly, does Google's cloud-oriented alternative to client-centric software, Chrome.  In another two years, IDC adds, tablet sales volumes will exceed aggregate shipments of portable and desktop computers.  But this isn't necessarily a disaster for PC makers, because unit sales of laptops and desktops will rise a bit during the next few years.  If IDC is right, tablets may be keeping a lid on PC sales, but they are not wrecking the PC business.

It's obvious that for some purposes tablets are replacing PCs.  It is equally obvious that tablets, which come out of the box with virtual keyboards and touchscreens, are not the best devices for cranking out spreadsheets, writing text documents, or developing slide shows.  When it comes to business applications, the jury is still out.  For now, and very likely forever, a mix of PCs, tablets, and smartphones will constitute the client base.

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DRONES WITH PHONES

Cisco TelePresence is a software system that gives functionality and character to a robotic rolling plastic column dubbed Ava 500.  Ava, ambulatory hardware from iRobot, is five and a half feet tall.  It is packed with media transponders and features a display showing a remote operator's head.  Ava has plenty of company these days.  Some roving devices bring doctors to distant patients.

And back in computing country, both IBM and EMC are testing machines that patrol data centers.  If this catches on, you might get a glass house robot yourself, or be replaced by one.

It's probably about time ambulatory robots caught on in the business world; they have long since become popular at home.

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IBM'S FOURTH QUARTER SALES SLUMP WHILE AFTER-TAX EARNINGS RISE

In the fourth quarter of what has been a very poor year for the company, IBM sales fell 5.5 percent and pre-tax profit dropped 11 percent, but, due to a lower tax rate, after-tax income climbed 6 percent.  Hardware revenue tumbled 26 percent as mainframe sales fell 37 percent (on a 26 percent decline in MIPS shipments) and Power systems intake fell 31 percent.  Software income rose 3.3 percent, financing was up 7.7 percent nd Global Business Services expanded 0.3 percent.  Global Technology Services, twice the size of GBS, fell 3.8 percent.

IBM's hardware downturn was not confined to its two proprietary server lines.  System X revenue was off 16 perdent and storage sales dropped 13 percent.  Microelectronics, IBM's foundry business, was down 33 percent.  IBM reported pre-tax income of $200 million or 4.7 percent on its total hardware revenue of $4.4 billion.  As the quarter ended, various business media carried rumors of an effort by IBM to find a buyer for its X86 server business or at least the low-end portion of that business.  These stories suggested IBM hoped to get $4 billion for the business while prospective buyers were offering about half that amount.  The day after announcing its quarterly results, IBM said it would sell its X86 group to Lenovo for about $2.3 billion.

Despite its downturn in revenue, IBM reported an increase in net profit and in earnings per share.  The company reiterated its promise to increase EPS this year and next by concentrating on operations with high profit margins and reducing involvement in businesses that it cannot operate at high profit levels.

Notwithstanding the company's professed confidence in future profits, investors were spooked by the results and by the pattern of weak revenue and uncertain hardware profits that has, by various accounts, persisted for two or three years.  For shareholders, the most unsettling aspect of IBM's situation seems to be the softness in its services business, which was the engine that propelled IBM out of its dependence on hardware, particularly mainframe hardware, during the past two decades.  IBM is apparently seen as company whose concept of services depends heavily on legacy systems and procedures rather than the rapidly growing technology businesses that surround personalized, interactive and mobile computing.

IBM will have to show improved results — or at least a credible plan likely to improve results — in 2014 if it wants its to improve its image among investors.


IBM FOURTH QUARTER 2013 PERFORMANCE BY SEGMENT

REVENUE
CATEGORY
EXTERNAL
REVENUE
INTERNAL
REVENUE
TOTAL
REVENUE
PRE-TAX
INCOME
PRE-TAX
MARGIN
Systems & Technology 4,261 170 4,431 206 4.7
Percent change -26.1 -8.4 -25.5 -78.8  
Global Technology Services 9,917 262 10,179 1,989 19.5
Percent change -3.6 -11.9 -3.8 -1.9  
Global Business Services 4,747 169 4,915 940 19.1
Percent change 0.6 -7.0 0.3 11.7  
Software 8,140 878 9,018 4,239 47.0
Percent change 2.8 7.7 3.3 5.5  
Global Financing 534 654 1,188 589 49.6
Percent change -0.1 15.1 7.7 13.8  
Total for All Segments 27,599 2,113 29,732 7,964 26.8
Percent change -5.5 -4.2 -4.9 -4.9  
Eliminations/other 100 -2,133 -2,033 -1,002  
Total 27,699 0 27,699 6,962 25.1
Percent change -5.5   -5.5 -11.1  

The Eliminations/other line reflects an adjustment for activities that involve sales among IBM divisions that later yield sales to customers.
NM:  Not meaningful


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