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KING SOLOMON'S MIMES
King Solomon enjoys a prominent place in the Bible and Quran; in Arabic the name is Sulayman. A son of King David, Solomon was, according to scripture, the wisest and wealthiest of the Hebrew Kings. After his reign, Israel split in two, with the smaller part governed by Solomon’s son Rehoboam, the larger part by the unrelated Jeroboam. Our greatest contemporary corporate kings resemble Solomon. While none have 700 wives and 300 concubines, their lawyers, dreaming of the prenup work, may wish they had Solomon’s connubial inclinations.
While archeologists and other scholars have not been able to put science behind all the stories of Solomon, that hasn’t kept writers delving into faith, mythology and whatever else goes into biblical commentary and embellishment from building a rich, if at times fanciful, body of literature. Solomon’s life also inspired quite a few painters and sculptors. For example, Solomon used some of his great wealth to build the first Great Temple in Jerusalem. There’s nothing left of that building, although there might be parts of its foundation on the presumed site. Nonetheless, writers and artists have suggested that the building of the Temple was extremely important to Solomon, much the way the new space ship headquarters is of monumental important to Apple even though its Solomon, Steve Jobs, is long gone.
There is no question that some perhaps many of the stories of Solomon exaggerate his gifts, however extraordinary they may have been. Some myths ascribe not merely human powers to Solomon but also supernatural gifts. Solomon, according to the most imaginative tales spanning the Abrahamic cultures, could perform magic and control mendacious spirits, even that greatest of demons, Asmodeus. Examples can be found far from scripture. One thread of Solomonic mythical cloth weaves into the Thousand and One Nights. Another, in the Quran, says Solomon could talk to birds. Yet another, in Hebrew commentaries that embellish the Torah, described in great detail the throne in Solomon’s palace; that description and other inspired some painters, including the eighteenth century German Andreas Brugger.
It’s easy to see that any business mogul that dreams of resembling Solomon has a lot to hope for. Nevertheless, the founders and leaders of today’s most lively companies don’t suffer from an excess of modesty. They might not think they are Solomon reincarnated, but they know their wealth and power is comparable to that of ancient kings. Like that of the potentates of yore, however, their power and the power of the organizations they have built might not long outlast their lives. Some will undoubtedly pass their corporate crowns to successors, but few will be able to achieve the durability of, say, an IBM, which, while currently under great strain, has nevertheless lasted more than a century.
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IBM has about 375,000 employees. Five years ago, the company’s payroll covered roughly 430,000 employees, some 55,000 or around 15 percent more than today�s estimates. IBM didn’t simply trim its workforce. Rather, IBM dismissed tens of thousands but also hired many others. The corporate headcount numbers reflect the net impact. Meanwhile, in every single quarter since 2012, IBM’s revenue declined compared to the year earlier period. So, to cut costs, IBM may continue to pare its payroll. Many IBM employees are worried. Yet they may be the lucky ones: They still have their jobs.
The potential for sweeping layoffs at IBM probably weighs most heavily on employees in IBM’s home country, the USA. In America, IBM enjoys enormous freedom to reshape its workforce without running into too may restrictive regulations. In addition, IBM employees in America at every level are among the highest paid people on the company’s roster. American wages stand in sharp contrast to IBM’s pay levels in India, where the company has built a formidable force of technical talent happy to work for less than their typical American counterparts. IBM’s Indian employees are also generally paid and less than personnel in Canada, Japan, and Western Europe, but compared to others in India with comparable skills, they do very well.
IBM’s American employees are nervous nellies, and they seem to be willing to talk about their worries. These concerns amplified by Internet media such as the Facebook page that carries comments from present and more often former IBM employees. That web page is a remnant of a failed effort to unionize Big Blue by the Communications Workers of America.
These web postings seem to come largely from people dropped by IBM in one of the downsizing moves the company calls Resource Actions, or RAs, although some of the comments appear to be from people still on the IBM payroll. If there’s a common sentiment among the contributors it is disappointment. The posters clearly believed an IBM career offered a lot of security along with a bundle of policies and practices that made Big Blue a superb place to obtain a solid financial and social foundation. And it clearly used to be the case that a landing job at IBM was a terrific and lasting accomplishment. That enormous sense of opportunity within IBM is still the case in India and, soon, if IBM does what its executives have promised shareholders, it will be the situation in parts of Africa, too, where IBM believes an important part of its future lies.
Still, IBM employees the world over are understandably concerned about job security, even in places where law and culture make it more difficult for IBM to shed employees than in the USA. IBMers outside the USA may have somewhat greater job security, and they may be more reluctant to voice their concerns and gripes than Americans, but nobody working for IBM these days can take their position for granted.
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LOCATION, LOCATION, LOCATION
Geolocation is one of the most influential technologies in the mix that constitutes the mobile internet. Even when used via a physically static device, such as a desktop PC, geolocation shapes the way users’ apps interact with many information technology services. Apple and Google are the visible leaders, but Microsoft’s Bing, well aware of the importance of geolocation in server side and client side activities, is as keen as its rivals to provide vital services. IBM isn’t yet a geolocation powerhouse, but changing circumstances may soon compel it to engage with vigor.
The popular surface of geolocation technology is a maps app with its database of locations. Maps apps have a closely related and tightly integrated navigation app. Apple and Google each have excellent technology supplying these functions. Microsoft, via its Bing brand for search is also quite good at mapping and navigation. Bing still provides turn-by-turn directions even as Windows Phone loses relevance; it nevertheless lags Apple and Google when it comes to offering a variety of views and appealing and effective voice prompts for drivers.
Amazon, which, like the three maps providers, has been putting a big effort into speech input and output, doesn’t have a mapping system for the public. This is a bit surprising, because Amazon clearly understands logistics, with its immense dependence on geolocation, better than just about anyone. The company offers access to its mapping technology to app developers. It would not be surprising to learn that Amazon was developing a maps and navigation system for consumers.
A few years back there was an opportunity for other companies like Facebook (or IBM, for that matter) to get a strong position in the maps and nav app game via the buyout of a very clever payer, Waze. The Waze system, developed by an Israeli outfit, uses crowd-sourced data to enrich maps with live guidance about road, traffic and other dynamic conditions. Some of the ideas Waze developed have seeped into Apple and Google geolocation technologies, but Waze has managed to protect its intellectual property and thereby preserve its uniqueness. It is still an app with lots of enthusiastic fans even now, when it is part of Alphabet’s empire but still in possession of some autonomy. Alphabet doesn�t want to damage Waze, not after paying such a big price, about $1.3 billion, when it bought Waze nearly four years ago. That buyout price is well within the range of acquisition costs that Facebook or IBM could afford, if either of them had decided they just had to own Waze. Now, of course, it’s too late. Facebook and IBM must find another path to the heart of geolocation technology if they want to enjoy a strong presence in this specialty.
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FROM HEGEL TO GOOGLE
The renowned philosopher Georg Hegel, whose life coincided with the Industrial Revolution, analyzed social change and the resultant conflict of old and new. His ideas galvanized Karl Marx, 50 years his junior. Two centuries after his birth, Hegel's wisdom guided Silicon Valley's sensational inventors.
At its best, our economy is nourished by a hearty Hegelian stew of technologies seasoned with a dash of Ninotchka. At its worst, we try to feed on an Apple duly but dully managed by former ibmocrat Tim Cook as we listen to a hoarse Yahoo.
It's very difficult to go from zero to Hegel. If you've taken a couple semesters of philosophy, you've probably been on the path that leads to Hegel and beyond. Hegel's work has roots in classical Greece, in the words of Socrates as conveyed by Plato. The ancient Greeks explored learning in the form of conversations or dialogues. Philosophers use the term dialectic for the two-way exchange of views in the quest for truth. It gets complicated if you are just jumping in at the deep end. It took scholars a couple thousand years of discourse to get from the Greeks to the nineteenth century, and philosophy has kept moving since.
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When Vulcan gets riled, steer clear of volcanos. Be nice. Show him some respect. Admire his metalworking skills. Celebrate his holiday, Vulcanalia, on August 23. Don't hurt Vulcan's feelings as Pompeii apparently did. In 79 AD, Pompeii was buried alive in ash and lava. Vulcan is obviously implicated: Vesuvius erupted on August 24, right after Vulcanalia.
IBM, which has supported a huge study of Pompeii's destruction, should know better than to trifle with Vulcan. But Big Blue has been vexatious, deprecating the hardware business. Vulcan is surely offended; he could strike at any moment. Watch out!
It's not entirely surprising that IBM has underestimated the wrath of Vulcan. Of all the many Roman gods, Vulcan was the ugliest. He didn't have a handsome face. He had a crippled leg. And his work at a forge often left him filthy. He doesn't seem to rate a lot of coverage in literature; his wife, the beautiful Venus, has always gotten better press.
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JIMMY CHOO HILL
In the American West during the last quarter of the 19th century, quite a few people died with their boots on, thereby ending up in Boot Hill. These days, few people die in a saddle. Some die in gunfights. Plenty die at their desks, the way Bat Masterson did in 1921. A boneyard whose occupants expired at work wouldn't be called Boot Hill anyway. Instead, particularly if it catered to the computer business with its many women executives, it would be named Jimmy Choo Hill.
There wasn't just one Boot Hill. There were plenty across the Great Plains and into the West. One of them, however, is by far the most famous. That is the one in Tombstone Arizona, a town known for the 1881 Gunfight at the OK Corral. That ruckus added a few occupants to the local graveyard, including at least three gun-slinging cowboys. Boot Hill also is the final resting place of a Well Fargo station agent named Lester Moore who was shot during a dispute with a customer. Moore's marker says, "Here lies Lester Moore, four slugs from a .44, no Les, no more."
The survivors of the OK Corral shootout included three Earp brothers, the most famous of which was Wyatt, and Doc Holliday. Bat Masterson was one of their buddies. He missed the fight because he had to go to Dodge City, Kansas, to help one of his brothers who had problems in the saloon business. Masterson survived numerous adventures in the West but ended up in New York City, where, for 18 years, he wrote a newspaper column on sports, mainly boxing. In 1921, at the age of 67, he suffered a heart attack while at the New York Morning Telegraph. He was buried at Woodlawn Cemetery in the Bronx; Damon Runyon was one of his pallbearers. Wyatt Earp outlasted him, dying at the age of 80 in 1929. Earp is buried in Hills of Eternity, a Jewish cemetery in Colma, California, south of San Francisco, at a gravesite where he was eventually joined by his third or fourth wife, Josephine Sara (Sadie) Marcus.
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PUTTING ITS MONEY WHERE IT'S MALTHUS
In 1798 Robert Malthus triggered a perpetual debate about the damaging effects of demographic pressure. An Essay on the Principle of Population asserted that, unchecked by canon, custom or calamity, a nation's fecundity will outpace its ability to produce or procure food. A similar phenomenon can weaken a company. IBM's revenue per employee has fallen since 2004, two years into Sam Palmisano decade-long reign. IBM's subsequent leader, Ginny Rometty, hasn't been able to reverse this dire trend; consequently, IBM's corporate culture is losing vitality as its employees become financially undernourished.
For IBM, as for other cultural aggregates since biblical times, it's not just about recognizing the problems posed by absolute or relative poverty, but about developing and implementing an effective coping strategy.
In ancient Egypt, according to the Old Testament and the Koran, a worried pharaoh turned to a prophet named Joseph to interpret disturbing dreams. In the dreams there appeared seven fat cows and subsequently seven very lean ones that ate the first seven. In another sequence, seven healthy corn plants were followed by seven sickly ones that consumed the first seven. When the pharaoh, following a courtier's suggestion, asked Joseph, who was a prisoner at the time, what the dreams meant, Joseph said that the pharaoh had been given a timely and valuable warning: Egyptian agriculture would be blessed with seven very good years but after which it would suffer seven years of crop failures and potential famine. The pharaoh reckoned that careful management of the bumper crops might enable his empire to ride out the lean years . . . if he could find a way to do that.
There was nobody near the top of the political heap in Egypt that the pharaoh could rely on to competently manage the Egyptian economy through a 14-year cycle. So the pharaoh took a chance. He appointed Joseph, an untested character and an imprisoned alleged criminal to boot, his chancellor. Joseph was charged with developing means to store a portion of Egypt's annual harvests and, after seven years, if hard times hit, to manage the distribution of the previously stored grain.
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NERVES OF STEEL
As 2014 drew to a close, the Wall Street Journal, which undoubtedly can recognize an outfit in decline, said IBM shares would be the year's worst performing component of the Dow Jones Industrial Average. IBM was the biggest loser of the DJIA in 2013, too. The last company to do so poorly was Bethlehem Steel in 1995 and 1996; it was kicked off the DJIA in 1997. In 2001, Bethlehem went bankrupt, and two years after that it was dismembered. If IBM doesn't change quickly and dramatically, it is a goner.
Goodwill impairment may be the ruin of IBM. So, perhaps it's time for Big Blue's customers to understand just what it means. When one company buys another for more than the market value of its net assets (meaning assets minus liabilities), the difference between the net value and the acquisition price is called goodwill. When both companies are publicly held and the acquiring company pays more to buy its target than the price the stock market had previously concluded was its worth, the difference is easy to discern as goodwill.
For instance, if IBM bought a publicly held company with a total market capitalization of $1 billion and paid $1.5 billion to clinch the deal, IBM would put on its books assets totaling $1 billion plus a half billion dollars denoted as goodwill. Things can get a bit more arbitrary if the acquired firm is privately held, but accountants will arrive at a figure they stipulate is the market value of the company and call the amount by which the purchase price exceeded that value goodwill.
In the past, the acquiring company would slowly write down the value of goodwill, taking as long as 40 years to complete the process, slowly digesting the acquisition the way a python digests a large meal. But accounting rules change and in the USA, since 2001, companies are not permitted to amortize goodwill. They are, however, required to review the goodwill on their books. If a company decides that one of its acquisitions is no longer worth its former value because it could not be sold for at least the original acquisition price, the acquirer is supposed to declare a diminution of the goodwill on its balance sheet. The result would bring the acquired company's declared value in line with its actual or presumed market worth. The sum lopped off goodwill is called impairment.
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TWO CALVES AND CALVES NOT
In Semitic mythology, Jews at the foot of Mount Sinai embraced an invisible God rather than one represented by a golden statue of a calf. From that pivotal moment, the followers of Moses and eventually the other people of the book, Christians and Muslims, vested their faith in software rather than hardware. A couple dozen centuries later, the resultant monotheistic civilization controls the bulk of the word's wealth and power. This year, one of that civilization's great industrial institutions, IBM, shifted the burden of its strategic trust from physical hardware to intangible software and cloud computing.
For many customers, and probably for most of them, IBM's evolution is late rather than early. Users of IBM i technology have long since learned that Big Blue re-hosts their computing environment from time to time. In the past there has been some disruption (but not the same amount for every user) and a lot of progress (but not always as much improvement in price/performance as performance for legacy workloads). If IBM changed the i's hardware platform again or even embarked on a course that promised changes every few years, committed users would adapt. They would embrace gains from whatever progress directly helped them. And some would grumble. Change might lead to defections, but for lively i shops, lack of change would present an even greater temptation to exit the IBM i universe. The System/34, System/36, and their families faded away when they were frozen, not while the equipment was evolving.
Mainframe customers are often more tightly bound to their hardware than i users because quite a few run ancient applications or use venerable patches that depend on the specifics of IBM's instruction set and its implementation. Some of the oldest code run by mainframe shops is cloaked in mystery, its origins uncertain, its documentation little more than folklore, its behavior when run on a new platform capable of surprises. Nevertheless, mainframe shops have flocked to less costly IBM-compatible systems whenever they have had a chance, from the long-ago days of Amdahl and Hitachi PCM processors to the more recent FLEX and Hercules platforms. Amdahl and Hitachi built IBM-like hardware and wrote IBM-like firmware. FLEX and Hercules emulations run on X86 hardware. Users generally got all their code to work and only abandoned or avoided the non-IBM alternatives when Big Blue scared them off. So, if IBM introduced a new hardware generation and promised support for all or nearly all legacy code, as it has in the past, offering in return improvements in functionality, power and particularly value, users would stick with their big iron. As is the case with the IBM i, progress can keep the mainframe alive, while paralysis would kill it off.
The IBM Power platform that is used for AIX and Linux as well as the IBM i operating system changes a bit with each generation, more or less the way X86 and ARM processors do. Generally speaking, instruction sets get richer, functions that have become more important to users get additional improvements and characteristics that are connected to fundamental properties of chips, such as cell geometries, change as transistors and their interconnections become smaller.
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WHEN OXFORD WAS OBNOXFORD
It was December 1208 or 1209. New Year's Day in England was March 25; the month after December 1208 was January 1208. Somebody bumped off a young woman who lived in Oxford. The villagers blamed university students, and, led by their mayor, hanged two. The remaining academics blew town right away, many moving east from their ford on the River Thames to a bridge over the River Cam. That is how Oxford University gave birth to Cambridge. They were the sole universities in England for 600 years, providing an organizational model for many academic institutions and some commercial companies.
The University of Oxford got its start a couple hundred years before the establishment of its rowing rival. The village, well outside the reach and largely beyond the influence of London, became a home for schools, not yet colleges, engaged in training theologians for the holy and lawyers for those less so. They were chartered and influenced by the Roman Catholic Church, but nevertheless retained some independence. They were governed by canon law rather than civil law, a fact that made the hanging of two clerks, as students were known in those days, even for alleged participation in a murder, extralegal.
At the time, however, there wasn't much the Church could do to intercede. England's King John had a falling out with Rome. England was under an interdiction for five years beginning in 1208. John, who didn't accept the Church's choice for Archbishop of Canterbury, was excommunicated by Pope Innocent III.
The last thing college masters, nominally supervised by bishops, wanted was to fight the political establishment. They had a lot to lose, including the tax exemptions and other legal perquisites. Eventually, John caved, apologized to the Pope in writing and thus ended the sanctions. By 1213 the hubbub in Oxford had settled down to some extent and the University of Oxford enjoyed a rebirth. A couple years later John make another important compromise when he signed the Magna Carta, sharing power with other nobles and putting England on a path that would eventually lead to democracy.
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WHO SAYS ELEPHANTS CAN'T DIE?
Fifty years ago, the American computer industry had eight major participants. IBM had about two-thirds of the market; seven dwarfs shared the rest, and none of them is particularly important anymore. That is the nature of enterprise. Many companies prominent in the Dow Jones Industrial Average back in 1966 have faded. Looking back a century, only General Electric can be found in both the 1914 list and today's roster. IBM was in the Dow from 1932 to 1939, when it was replaced by AT&T. IBM didn't make the DJIA again until 1979 and now it might not get a 100-year run. The way things are going, it might not even get half that far.
The last time IBM looked like it was headed for the glue factory was in the early 1990s. The company's board brought in Lou Gerstner and within a few years it was clear that Blue was going to be big again. Gerstner's reinvention of IBM as a services company gainsaid the naysayers. By the time Gerstner left IBM in 2002, observers declared IBM saved. Under Sam Palmisano, Gerstner's successor, IBM continued to forge ahead, propelled by growth in services, boosting the software business and taking IBM out of two classes of hardware that had thin profit margins: small computers and disk drives. But all was not rosy.
Toward the end of Palmisano's reign, some old issues that many observers thought were dead came back like zombies to haunt IBM. The client business, which IBM had abandoned, took off like a rocket. It didn't rise because of traditional personal computers. Instead, it blossomed as smartphones and later tablets began to perform many of the tasks that initially made PCs so popular and then learned compellingly attractive new tricks. Smartphones and tablets incorporated sensors along with geolocation apparatus and merged these technologies with the communications capabilities that made PCs so popular. The sensors enabled the clients to adapt to their motion, orientation and ambient conditions. The navigation subsystems enabled client gadgets to know where on earth they were located. And the communications features that expanded to include not only old text messaging and email but also telephony and videophone capability enabled app developers to give smartphones and tablets myriad amusing, informative and transformative capabilities.
All this stuff not only boosted Apple, which more than any other company has invented the new world of smart, interactive clients, but empowered Google, the master of mobile monetization, and fueled Amazon, the wizard of shopper-friendly systems. The transformation of information processing into a collection of intensely interactive processes and services has stunned large, powerful and talented companies that only a few years ago were feasting at the dot com diner.
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IBM SECOND QUARTER REVENUE FALLS 5 PERCENT BUT EPS EDGES OUT STREEET ESTIMATES
IBM's second quarter was its 21st consecutive reporting period in which revenue declined year-to-year. This quarter's drop was about 5 percent. Pre-tax income of $3.07 billion slightly exceeded the analysts' consensus of $3.0 billion. EPS came in at $2.97, a number that apparently pleased most financial analysts, but not enough to cheer up investors at large. The day after IBM released its figures, the company's share price fell more than $6, or nearly the same 5 percent that revenue declined.
IBM's systems business, hardware plus systems software, slid 10 percent and the pre-tax income produced by that segment dropped 67 percent compared to last year's second quarter. A big part of this unfortunate result is due to the dropoff in mainframe sales, expected to rebound smartly as IBM announced its z14 as the third quarter began. By comparison, power systems, off a mere 3 percent, held up well. And IBM's sales of storage equipment, shaped by flash array disk alternatives, jumped up 8 percent. IBM believes its prospects in systems will be much brighter during the second half of the year, and most Wall Street commentators seem to buy that story.
IBM's services revenue has declined, too, as even its relatively lively cloud services activitiy could not overcome declines due to the winding down of legacy services work. IBM said its services backlog fell about 4 percent compared to last year's second quarter, while new contract signings dipped an alarming 14 percent.
IBM claims that its emerging new activities, things it labels "strategic" aspects of its diverse business, are in pretty good shape even though the falloff in legacy aspects of IBM's soup-to-nuts portfolio seems to be shaving the company's top and bottom lines quite severely. The company maintains its optimistic financial projections for the whole of 2017, but a number of well-regarded financial analysts doubt Big Blue can pull it off. IBM's corporate customers obviously want their flagship vendor to do well. If the user base starts to worry about IBM's ability to keep promises and maintain longstanding trends, things could get pretty dicey.
IBM SECOND QUARTER PERFORMANCE BY SEGMENT
|Systems Hardware And Software||1,747||177||74||3.9%|
|Technology Services & Cloud||8,406||173||1009||11.8%|
|Global Business Services||4,097||93||321||7.7%|
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