Thread regarding IBM layoffs

I believe your observation that “the customers stick around to generate 55 billion” is a good one. REMEMBER IBM has been cultivating the cloud (think internal MSP) to make the shrink rate off of the Enterprise legacy quite small. The other advantage of the cloud is it takes approx 10% of the technical head count to field a viable work force. On the Power side of the house IBM has embraced the HPC model which only 5-10 Enterprise customers can exploit and P9 seems to be catering to that. SW wise IBM has IP’ed all of the middle ware out, and finally figured out how to charge by the month with their legacy cloud while exploiting the services side of the cloud as a profit center. Essentially IBM has built a cloud model around their Z infrastructure, made a P9 that HPC customers should beat a path to, migrated their OTC SW model to a rental model, and found a legacy services model that has customers coming to them instead of IBM overtly going out and trying to market subpar services. Yes it’s built around legacy, but it should sustain approx 55 billion a year. The research and patent train should become a 1-2 billion profit center per year. The labor intensive services side of the house has migrated to India, and most likely will be spun off. SO if IBM can finally manage a transition, maybe (and that’s a big maybe) they can finally make some money. I’m not holding my breath, because IBM only thinks about the next quarter, and this plan will take at least another year to 6 quarters to execute

That is assuming $55B of customers bother to stick around that long. If IBM tries to play the value for money game they will always lose and the IBM brand no longer has the customer support of Google or Apple. Most of their best customers today are still dependent on legacy technology or they inherited from an acquisition.

So take one more step in the thread we are chatting about, and you pretty much can see where IBM is going. This next step makes an assumption, but I believe it’s a rather good assumption

1. New IBM is Strategic and Fortune 250 worldwide. (needs 25% of the existing marketing, sales, and technical experts). IBM considers the 75% either IP (legacy investment that it needs to recover, or services that it needs to milk)

2. GTS and GBS have been combined and SCON’ed into India. (again an 75/25% split on the in India vs the outside of India equation). What can be outsourced to India has, or will be outsourced to India as quickly as possible. The 25% head count outside of India gets absorbed into new IBM, and the India component of GTS/GBS gets spun off into a new venture that gets called a new name and issues new stock. (sounds like HPE and CSC doesn’t it)

3. The Legacy portion of IBM will continue to get spun off via IP deals. This has been going on for several years (rational, Lotus, Tivoli, PC’s, PC servers, etc etc etc). The remaining portion of “legacy” will get absorbed into either the existing channel, or via an outright sale to a legacy HW vendor much like EMC/Dell

So let’s do the math. 80 billion today with approx 350k headcount. 130k in India gets spun off. That results in 220k and 55 billion. IBM lays off 30k of existing heads. = 55 billion and 190k of heads. Spin off the channel via IP = 20k more heads go, but revenue remains. Thus 170k and 55 billion for “new IBM”. That results in 323k per head left in IBM. Right where IBM has always targeted and right where most of IBM’s competitors live.

So one last assumption. Is 55 billion and 170k worth of heads viable. YEP. In fact it would be a target considering the redundancies and IBM exec overhead. Redundancies if acquired would dump 10-15k worth of heads and dumping executives would relieve another 10k worth of heads. Now you are at 145k and 55 billion. That’s 380k per head. Right where Google and Apple live

Strategic initiatives customers have always just been reclassified outsourced customers, as their contracts come up they either move across or leave if they don't buy the sales pitch. There won't be much left of IBM to worry about soon.

This strategy makes sense given most of IBM's revenue is coming from large banks and insurance companies still using the mainframe. They spend a huge some on mainframe software and many are outsourced (or should we say "Cloud"). In my view, IBM just reclassifying traditional HW & SW revenue to "cloud" on outsourcing deals and calling it a growth area. Once they wrap up enough of these clients, they can stop the meager innovation that is still taking place and ride the outsourcing and software revenue stream as long as the platform can remain viable supporting it offshore with a skeleton crew in the US.

It will still be a failing model if they continue operating with the top heavy mgmt structure.

Let's see if they finally trim the fat where it's needed. (not holding my breath)