Thinking of buying something online from Walmart or Costco? Think again. For me, the old adage applies: “Fool me once, shame on you. Fool me twice, shame on me.” I will not be fooled again into buying anything online from these two companies.

Bob Djurdjevic, Scottsdale, Arizona

This particular e-nightmare started over two months ago when my wife expressed a desire to have a TV set in our bedroom. She thought it might help her back pain. Of course, at the time, we had no idea the buying process would turn into a nightmare. Make that an e-nightmare. Because most of the problems were caused by badly designed computer systems telling hapless humans what to do. Or not to do.


We’ll fast-forward to April 19 when I ordered online a new Samsung smart TV from Walmart. They promised delivery between Apr 22-25. The set eventually arrived late – Apr 26. It was a bulky package but the FedEx guy refused to carry it in even through the front door.

“We’re not allowed to do that,” he said.


I eventually got around to opening the box and trying to set it up the following day. Once upon a time, a set like that would have come with instructions. This one came with one piece of paper which read “Quick Setup Instructions” and consisted only of several pictures.

There was nothing, for example, about how to install the legs. Yet the two legs would not fit in easily. And I wasn’t about to force them in and damage a brand new set. So I called Samsung support.

Long wait. Finally, an agent with a heavy foreign accent answered the call. After a couple of minutes of conversation it was clear that he had no idea what I was talking about. I offered to take a picture or a video. The agent was still of no help.

I hung up and called again hoping to get someone more useful. The second agent had an accent, too but also something other than mush between his ears. Eventually I figured out the problem myself. The two legs were wrongly labeled (left vs. right).

My wife and I carried a heavy TV to the stand. When I turned it on, nothing happened. Upon a closer look I saw vertical colored lines flickering.

“Uh, uh” I muttered. These symptoms reminded me of sick computer screens I had seen before in my 46 years in the IT industry.

I called Samsung again. After much “do this and do that,” I came close to the TV screen intending to photograph the flickering lines.

“Uh, uh” I said again dejectedly. “The screen is cracked.” It looked as if someone had stuck a screwdriver into it. Or some other sharp and pointed object (see above photo).

Back to the phone, first with Samsung then Walmart. About how to arrange for a return of the damaged TV and replacement of a new one.

More than half an hour later, the Walmart agent promised that the damaged TV would be picked up on Tuesday (3 days later) and the new one delivered the same day.


Next I get an email from Walmart telling me I need to take the damaged TV to Fedex. Another phone call. Another conversation with a clueless agent having to explain that this is not a roll of toilet paper I am returning to Walmart. It is a very large and quite heavy TV set. And that I need Fedex to come and pick up. The agent promised to arrange for “instant pickup.”

Later that day, Fedex showed up. I was glad to at least something was happening on time. But when the Fedex guy looked at the shipping label Walmart sent me he said he could not pick it up.

“This is Fedex Ground,” he said. “We are Fedex Freight.”

I nearly blew my top.

“What do I care what you call yourselves. This is the Fedex label Walmart sent me and I want you to pick up this box and get it out of my house.”

“Just a moment, Sir,” the Fedex guy said reaching for the phone to call his supervisor.

A few minutes later, he came back and said, “sorry, can’t do it. You have to wait for Fedex Ground.”

“Don’t move,” I ordered him. “I am going to call Walmart right now and I want you to stand here and listen to the conversation.

After a while, another clueless Walmart agent answered the phone. She said she could not do anything. Their computer decides what kind of a label to send me and whom to dispatch to pick it up.

“Why don’t you override your stupid computer and just send me another label for Fedex Freight?” I asked. “I have the Fedex guy standing right next to me.”

“Sorry, Sir, we can’t do that.”

“Can you tell me then when the Fedex Ground will show up?”

“Tomorrow,” she said after checking her computer.

“And when can I expect my new and undamaged TV set? It was promised for today.”

“We will ship you the new set after we receive the return.”

“What? But your colleague on Saturday said the pick up and delivery will take place the same day – Tuesday. Which is today.”

“Sorry, Sir, but we cannot do that. Our protocol is that we do not ship until we receive a return.”

The Fedex guy next to me was shaking his head in disbelief.

“Just a moment,” I said to the Walmart agent. “I’ll be right back.”

I went to my wife and briefly explained the situation. We both thought we should just cancel the Walmart order and get a refund. And then order the new TV from someone else. Which is what I told the Walmart agent when I got back on the phone.

“When can I expect that refund?” I asked.

“After we receive the return. It will take a few days after that to process the refund.”

The Fedex guy kept shaking his head.

“Two large companies which had lost control of their business,” I said. “You, Fedex, are so compartmentalized that you did not even know how many disparate services your company had” (it turns out there are four – Fedex Ground, Freight, Office and Express). There is even Fedex Logistics though it’s unclear what they do since there is absolutely no logic in the manner in which this $69 billion-company operates.

“As for Walmart,” I continued, “they are even worse as you saw for yourself. They are letting their computer make business decisions which people used to make. And their customer service agents are mere button-pushers who just follow protocols some computer people had devised.”

BTW – Walmart is a $560 billion-company. Talk about something being too large for its own good. As for Samsung, it is a $43 billion-company based in Korea, but with factories all over the world.


The same evening I ordered the same TV set from Costco. Another large company, I thought with some trepidation. Their annual revenues are $196 billion.

“Will I also have to wrestle their computer?” I wondered.

Costco online system took my money right away but promised delivery on Thursday, May 5.

“Whatever happened with the good old COD?” I thought.

For those of you who are too young to remember, COD stood for Cash On Delivery. Nowadays, nobody is paying cash anymore. Everybody is paying in advance. And if something goes wrong, large companies hang on to your money for weeks before refunding it.

A nice little scheme they’ve devised to fleece the consumer of a few extra dollars in interest while their agents can hide behind “the computer says so”-excuses.


A FedEx Ground guy showed up at our door in late morning on Wednesday. It was a big black guy. I greeted him as if he were a long lost brother.

“Here’s my man,” I shouted smiling as I opened the front door. “I have been waiting for you for 5 days!”

The Fedex guy just smiled looking confused but pleased. Guess he’d never experienced such as welcome when ringing someone’s doorbell. I never bother to explain why I was so happy to see him.

“Have a great day, brother,” he said with a big smile as he hauled away the big TV box


The morning of the promised Costco delivery I noticed that in the email confirming it, Costco had used our old address. I checked my online order and saw that it had the correct address. Three years ago, we moved three doors on the same street over into a bigger house. The difference was just in the house number. But one of Costco computers must have still retained the old number and chose to stick it in for this delivery instead of the address I had specified on the order.

A phone call to Costco. “Just in case,” I thought, thinking it was a trivial matter to correct the number and text the driver to drop the TV off at our new house.

Not so, I am afraid. The Costco agent kept me on the phone for half an hour. And at the end of it she said it would take them three days to change the address in their system. And that they would have to cancel the delivery.

“What?” I raged on. “That is totally unacceptable. You made a mistake. You need to correct. And I want you to deliver my TV today as promised.”

“Then you are going to have to talk to ‘membership’ to change your address in their system,” the agent said.

A few minuted later, I got a call from the driver. “I am 15 minutes away,” he said.

“That’s a courtesy I never got from Fedex,” I thought (a headsup call). “Must be a small trucking company.”

Which surprised me given the size of Costco. “Birds of a feather flock together,” as they say. Large companies usually do business with likesize enterprises.

Anyway, I used the opportunity to tell the driver to deliver the box to our new house number. He balked. “I have to check with my supervisor,” he said.

“Uh, uh,” I thought to myself. “Here we go again. Another rigamarole even with smaller companies.”

A few minutes later, I got a call from “Fedex Logistics.” Same story as with the first agent, hassle about changing the phone number. This woman also wanted to cancel delivery.

“No way,” I said angrily. “I am standing in front of my old house and I will take delivery of my TV set there.”

“Okay,” she said. “Hang on.”

That’s when I saw a white truck parked on our street some 100 yards from our house. I figured that must be my delivery. I waved them on to come to me. The truck crept slowly and eventually stopped in front of our old house.

I saw that the driver was talking to someone on the phone. I figured it was this woman from the Costco Logistics. He was a big black guy. Another smaller guy was in the passenger seat. When the big guy finished the conversation he got out and opened the back of the truck. I was that they had a dolly there.

“Just unload it here and lend me a dolly,” I said. “I’ll take the TV to our new house myself.”

The driver never said anything. He just grabbed the big TV box as if it were full of feathers and took i to the side of the garage where the house number was showing. Then he took a couple of pictures with his phone of the TV box and the house number. And of myself standing sideways beside the box.

Then he grabbed the big box himself, through it over his shoulder as if it were a backpack, and started walking toward our new house. That’s only about 100 yards. But still, it was a big 70-inch box (175cm) and heavy in my experience.

I opened the front door for him. He carried the box into the front hall and gently put it on the ground.

“Have a beautiful day,” he said with a big smile.

Finally something nice about this awful experience.





Now the World’s Most Valuable Company

40 years ago, on April 1, 1976, college dropout Steve Jobs and his friends Steve Wozniak and Ronald Wayne incorporated Apple Computer. At the time, few could have imagined that what started in Jobs’ parents’ garage would become one of the greatest success stories in corporate history.

While remarkably successful from the start – Apple went from zero to one and a half billion dollars in revenue within eight years – there were some ups and downs in the company’s early days. It wasn’t until Steve Jobs’ second stint as CEO that Apple became what it is today: the most valuable company in the world.

With the release of the iPhone in 2007, Apple’s revenue (and profit for that matter) started to skyrocket, reaching a record $234 billion in fiscal 2015.



As a computer industry veteran of 47 years, I remember that early Apple very well. Back in 1977, I was a product line manager at IBM in charge of the “white space” – i.e., new entry-level product development and opportunities.IBM Titanic June 1983 ACR

Sensing that we might be at the doorstep of a major industry transformation, I urged the senior IBM executives to invest in new “entry systems,” as we called them back then. (That was 3 years before the term “PC” was born). They refused. They thought companies like Apple, Atari, Osborn were “just” a “hobbyist” market.

“No money in it,” someone said. And also below the dignity of the industry leader like IBM.

So I left IBM in May 1978 to start my own business – Annex Computer which later morphed into Annex Research ( I also bought an Apple II but I didn’t like it. I returned it to the store and got my money back.

Soon, IBM realized it was missing the boat. So it hurriedly invested in the development of a “Personal Computer” (PC), using a “borrowed” operating system (Microsoft DOS) and other hardware it could quickly assemble from various suppliers. The first PC that premiered in 1981 was that kind of a “hybrid.” Still, it became a success and gave the whole “entry systems” industry segment its name. Which has lasted to this today.

Meanwhile, Apple was plodding along, struggling as often as succeeding. Its business actually shrank in the late 1990s.

In 1996, I suggested to the relatively new CEO (Louis Gerstner), who was brought in to save the good old IBM, that the company might be missing the boat once again by not being in the low-end market. I showed him my forecast which predicted the consumer market to grow MUCH faster than the large enterprise business (19% vs. 1% per year – see the chart).


Like his predecessors in the late 1970s, Louis dismissed it as a “dumb idea” (see “Louis XIX of Armonk,” Aug 1996). And just like back then, IBM again missed the boat.

Today, consumer companies like Apple, Google and Microsoft are worth 3-4 times more than IBM. In fact, they are the three most valuable companies in the world, period. Bigger than Exxon or any other industrial dinosaurs. As for Big Blue, IBM is no longer even in the top 10.

So it goes… when companies stop reinventing themselves, they stagnate. And eventually perish. Like Kodak.

Happy April Fools’ Day!

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 * * *

IBM Titanic June 1983 ACR

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Screen Shot 2016-01-20 at 7.34.09 PMWhen I closed the doors on my business, Annex Research, on June 30, 2014, I did not think I would ever return to the analyst bullpen again. But one should never say never. So here I am, writing this short blurb about IBM only 18 months later.

But don’t worry. I am not unretiring, like Michael Jordan, who retired in 1993, 1998, and 2003 only to unretire in 1995 and 2001. 🙂 I love my life outside the bullpen and I intend to stay out. So this is a one-time shot. Sort of like pinch-hitting in late innings in just one game into which I stumbled accidentally.

I glanced this evening at the IBM 4Q earnings release as I was checking the precipitous stock market declines over the last several days. I have not looked closely at IBM in probably in a year. And I noticed that IBM tumbled even more than the Dow or S&P – down almost 5% just today (Jan 20). So I pulled up the IBM chart to see how bad things were.

I glanced at the IBM 4Q earnings release as I was checking the precipitous stock market declines over the last several days. I have not looked closely at IBM in probably in a year. And I noticed that IBM tumbled even more than the Dow or S&P – down almost 5% just today (Jan 20). So I pulled up the IBM chart to see how bad things were.


And they were pretty bad indeed. Since April 22, 2012, the IBM stock has declined 41%, from $207 to $122 per share.

Which should surprise no one on the Annex Research client list. Here’s what I said in part in that Apri 2012 report titled “BIG BLUE FEET OF CLAY:”

And we have a feeling this may be only only the start of a longer-term slide for this erstwhile bellwether stock of the Dow Jones Industrials’ index. Why the pessimism?

Three simple words: Lack of growth.

No amount of rhetoric and news-spinning by IBM’s CFO, Mark Loughridge, could reverse that fact.”

In August 2013, I updated that forecast and renewed our my call for a long-term decline of the erstwhile computer industry leader (“IBM: IN TROUBLED WATERS AGAIN“:

“Over 30 years ago, at a time when the world thought that Big Blue could walk on water (see TIME magazine cover, July 1983), we said IBM was sailing in troubled waters.  Nobody believed us, of course, least of all IBM executives.


And crash IBM nearly did nine years later. As the company teeter-tottered on the brink of oblivion, the Board ejected the IBM chairman and launched a rescue mission under a new “change artist” in early 1993.

We are in a similar situation now. When we said in Apr 2012 that IBM was stuck in its place with feet of clay while the marketplace around it was exploding, nobody believed us, either, least of all IBM executives.  Our media friends also remained largely mum about it. Witness the continued stock rise despite shrinking revenues (left chart).

Well, that illusion is now over.  Just like 30 years ago, the truth is slowly seeping out…”

Well, it took two-and-a-half more years for the stock market to accept this dose of reality.

Or did it? Will we see another resurrection attempt by the Big Blue faithful?

I doubt it. Even the most zealous IBM supporters must put their self-interests first. Unless they throw caution to the wind and decided they must hop aboard for one last ride on the Big Blue Titanic.

IBM Titanic June 1983 ACR

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IBM Chairman John Akers



Early this morning, a Wall Street Journal reporter asked for a comment for his John Akers’ obituary. That was the first I had heard about the passing of the former IBM CEO.

When he was in power, Akers and I often did not see eye-to-eye. We had often locked horns (ideologically) at various analyst conferences.  I would have preferred to have done it in private. But public events were the only chances an outsider got back then to Screen Shot 2014-06-30 at 10.34.30 PMtalk to the “untouchables” who occupied the Armonk throne in the Watsons’ Era.  Now, I feel saddened by Akers’ departure.  And for his RIP Requiem, I offer him this rendition of “Amazing Grace” which I played on my shaman’s flute when I retired atop Haleakala Volcano on June 30 (click here or on the photo-right to play it).

And now, here’s my reply to the Wall Street Journal reporter. Consider it my Akers Obit…

Hm… he was an (philosophical) adversary 30 years ago. But I feel sadness now. Like when experiencing the passing of an era. Or finishing a book.

Akers was the last of the “Great Big Blue Mohicans” – the “Watsonians” – products of the two Watsons Era. What followed Akers’ ouster in 1993 was a dismantling of everything the Watsons stood for. The core value at IBM became Greed, not “respect for an individual” (and his family) that the Watsons nurtured.

When Akers was sacked, I wrote what then and now may sound like an obituary (see below). Two years earlier, when we was still the emperor, I wrote a piece that basically said the emperor had no clothes.

Akers: A Nice Guy Who Lost His Compass (Jan 1993)

If they merely try to replace John Akers with another executive whom they feel is more competent to do the same job which Akers had held, our advice to the …
* * *

Akers: The Last Emperor (June 1991

John Akers‘ “public flogging” of his senior management certainly brought about a myriad of reactions — both within, and outside IBM. Some were quite favorable; …
Akers took it in stride. He was a gentleman. He understood that it was nothing personal. I was just doing my job to uncover the things IBM was trying to cover up. By contrast, some of his lieutenants, like the then heir apparent George Conrades, were upset with me. But not Akers. Unlike Gerstner whom I also took down a notch in 1996 (see Louis XIX”). I was told there is still a hole in the ceiling of the Old Armonk corner office where he blew up after reading it. 🙂
RIP, John Akers!

And now, I can return to my creative “non-retirement.” How creative? Check out this post I put out yesterday… 🙂



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After more than 1,100 years, “death by a thousand cuts” was outlawed as form of capital punishment in imperial China in 1905. Yet the gruesome ritual still seems to be practiced on Wall Street today. The latest victim? Big Blue. One of Wall Street’s favorites for more than six decades, IBM seems to be now suffering a slow and tortuous “death by a thousand cuts.” Ironically, China is one of the prominent recent bleeding gashes.

Take a look at the above chart.  Each time the market has reacted to disappointing FACTS emanating from Big Blue, Wall Street tried to prop up its darling with a new infusion of blood.  Over time, however, that was not enough. The victim’s health kept deteriorating as FACTS prevailed over wishful thinking.

No surprise there. We said nearly two years ago that IBM was in trouble (see Big Blue Feet of Clay – analysis of IBM 1Q12 business results and 5-year forecast, Apr 2012). At the time, the stock was at $207.  Today, it is hovering around $181 after another deep cut inflicted by the 4Q13 results, released  after the markets closed yesterday.

After three consecutive quarters of disappointing results, now everybody can see that IBM has feet of clay, as we put it back in Apr 2012. Only worse.  Not only the IBM hardware is now shriveling up rapidly, but its once buoyant “growth markets” – China, Russia, India, Brazil… – are all shrinking.  “Growth markets” declining? A new IBM oxymoron.

And so what’s IBM’s remedy?  Same old, same old: Stock buybacks.  Can the company keep on shrinking the number of outstanding shares to keep up with its shrinking business? Maybe so for a while. But ultimately, both will lead to extinction. And Wall Street is finally waking up to this reality. IBM has been the worst-performing top IT stock in the last 6 months and the last two years (see the charts below).

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IBM: “Rare Type of Organism That Eats Itself Alive” (Wall Street Journal)

“There is a rare type of organism that eats itself alive,” Dennis Berman, a Wall Street Journal columnist, noted in the Journal’s yesterday’s edition (1-21-14). “One of them is International Business Machines Corp.” [IBM -3.28%]

Berman goes on to explain something we have been critically writing about for the last 17 years  – that stock buybacks are a sign of corporate weakness, not strength.

“For the past 20 years, IBM has been an avid, methodical buyer of its own stock. In 1993, it had 2.3 billion shares outstanding,” the WSJ notes. “Today it has 1.1 billion, shrinking at more than 1% per quarter over the past few years. At that pace, there will be no more publicly traded IBM shares left by 2034.”

So IBM seems to be pursuing a road to extinction.

Well known Wall Street investor Jim Chanos is starting to worry about just this problem. He is coming around to the idea that buybacks are a sign of corporate weakness, not strength, the WSJ reports.

Which is what we have been saying for the last 17 years.  At the IBM 1997 Annual Meeting, this writer questioned the then IBM CEO about the wisdom of this strategy.

IBM Titanic June 1983 ACR TIME

“As I stand here before you, I am reminded of the question I asked of one of your predecessors, John Opel, at the Boston Annual Meeting in 1983,” this writer told Gerstner in Dallas, TX on Apr 29, 1997 .  ‘Why are you mortgaging IBM’s future?’

“I never thought I’d have to ask the same question again.  But here we are, and I do… So Lou Vincent Gerstner – ‘why are you mortgaging IBM’s future?'”

[see Stock Buybacks Questioned (IBM 1997 Annual Meeting, Apr 1997)“Corporate Cabbage Patch Dolls” (Nov 1998), Analysis of stock buyback bubble (May 23, 2007)].

And here we are for the third time in 30 years, having to ask the same question. Why is IBM mortgaging its future?

Because its management lacks both imagination and courage to do anything else except engage in “financial engineering.”

Back in the 1980s, such a lack of vision by John Akers and his predecessors (Opel, Cary) almost ran Big Blue into the ground. In the early 2000s, Gerstner left the company on a similarly perilous course.

It was Sam Palmisano focus on quality over quantity to manage to reverse the trend. For a while. Because even Palmisano lacked the courage for a more radical restructuring. Like breaking up Big Blue into smaller pieces, and pursuing aggressively NEW markets (beyond the corporate dinosaurs, IBM’s favorite customers). Both of them were recommendations this writer made in 1996, and again in 2006 (see Break Up IBM! (Mar. 20, 1996) and Analysis of IBM “state of the union” (Nov 10, 2006)).

No dice. “Big Blue Feet of Clay” remained stuck in place and in its old ways. And now, we are seeing the consequences. Double digit declines in hardware and once “emerging markets.”  Shrinkage even of its biggest services business. Dim outlook. A “death by a thousand cuts.” 

It is sad to see this once proud and mighty company come to this. But IBM is suffering a fate of its own making: Extinction. It’s just a matter of time. Which is the ultimate destiny of all empires. So the universe is unfolding as it should. 


By the way, lest I may be accused of writing more “I told you so” pieces, this will be my final commentary on IBM. Forty four years. Not a bad roller-coaster ride with Big Blue.  Thank you, IBM.  And farewell.

1101830711_400 Akers LouGerstner Palmisano speakingvirginia-rometty-IBM Screen Shot 2014-01-22 at 8.07.33 AM copy


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One day after reporting disappointing third quarter results, the IBM stock dropped like a rock. As we write this, it is down nearly 13 points. Which means that more than $11 billion of the company’s value has been wiped out literally overnight.  And not just IBM’s. We said that the Big Blue rip tide would likely drag down today some of its other fellow-dinosaurs in the Dow Industrials index.  Which is down 55 points right now despite the good news of the day – the reopening of the US government – countering the IBM disappointment.

In fact, this drop makes IBM Dow’s Worst Stock Year to Date.

No surprise there (see “IBM on Top: What Can We Expect?).  IBM rose on hot Wall Street air. It got deflated when the reality of the third quarter results punctured the balloon of lofty expectations.

So Wall Street has only itself to blame.  For, it refused to accept the reality of IBM’s slow-no growth business model (see Big Blue Feet of Clay).  Over and over again.  Until now. This writer’s empathy only goes to the gullible small investors who followed the bankers’ advice.

So it goes… greed begets trouble in the end.



IBM is on tap today on Wall Street. Its third quarter results are due after the markets close later this afternoon.  What can we expect?  More of the same (declines), or a trend reversal?

Screen Shot 2013-10-15 at 9.05.32 PM Screen Shot 2013-10-15 at 7.50.04 PM

The stock market has been basically flat in the last six months, the occasional up and down oscillations notwithstanding (left chart). IBM, on the other hand, also a part of the Dow Jones index,  has been decidedly down, both relative to the market and to its major competitors (right chart).  Even the lowly HP has done better despite the recent declines.

After cheering Big Blue for 15 months despite its declining results, Wall Street seems to have finally given up on it after its last earnings report in July (see IBM in Troubled Waters Again – historical analysis of IBM ebbs and flows; long term outlook and recommendations for change).  So is it too soon to write off Big Blue now, or not fast enough?

How about we let the facts try to answer that question? Perhaps it would be helpful to consider how IBM has been faring in the last three months relative to the Top 15 global IT leaders. So we took a closer look at all of them, both from the market and the business standpoints. And this is what we saw…

Top IT 10-15-13-1 Top IT 10-15-13-2

Furthermore, when we compared the current IBM stock price with that of its top competitors, we found out that one of the two things is true. Either IBM is undervalued, or the prices of the top echelon the IT industry are overinflated.  If one used the average P/E ratio of the Top 15, the IBM stock should be around $226.  Instead, it closed yesterday at $184.66. That’s a 22% discount relative to its peers.

IBM @ Top 15 P/E   





Based on what we see happening with stocks such as Facebook, we would tend to favor the latter explanation (that the Top 15 are overvalued).  And here’s why…

Take Facebook, for example. This newcomer to the Top 15 has seen its stock price double in the last three months. It was on pure hype. Its business results, i.e., the facts, had very little to do with it.  Check out, for example, how Facebook stacks up against Apple, the IT industry leader:











At the $121 billion market cap, Facebook represents more than a quarter of the largest company in the world in this category. It’s bigger than Intel, SAP, EMC, Accenture, HP… But FB revenues are mere $6 billion (4% of Apple’s), and its net earnings $0.55 billion (1% of Apple’s).  So the FB valuation is a prime example of a stock rising on hot air. Once the balloon deflates, so will its market cap. When that happens, you don’t want to end up holding a lot of FB shares. Or for that matter the stocks of its competitors which similarly rose on hot air and wishful thinking.

Ditto re. the rest of the top IT leaders.  Their revenues are flat. The earnings are up only 2%. But the stock market keeps on boosting their prices (up 3% since July – see IT_Leaders10_15_13). Maybe that’s because they are so obliging to Wall Street bankers as to keep on selling themselves back to them? Stock buybacks are now as common on Wall Street as winter flu. As a result, the Top 15 IT equities are down 1.2% (since July!). Twenty years ago, nobody had even heard of such perversions as share repurchases. Now, the bankers have managed to persuade the leaders of the top corporations to manage their companies to extinction.

An exaggeration? Hardly. Take IBM, for example. At 102, Big Blue is the oldest company in the industry. One would think that, therefore, this company’s shareholders’ equity would be head and shoulders over that of other, younger companies’. Instead, IBM is only in the 10th position.   Even the lowly HP is bigger than IBM in this category (see above chart).

Which reminds us of what Wharton Business School Prof. John Persival said at an IBM conference in New York six years ago. He said that managing a company to extinction was “a viable low risk management strategy.”  He used Kodak as an example back then. Now that Kodak has bit the dust, his comments sound that much more prescient.

So back to our initial question – what to expect from IBM today? This writer’s money would be on further declines.  Alas, that’s only a figure of speech. For, I don’t own any of these stocks, including Big Blue’s. So if I am wrong after IBM releases its results today, you can only accuse me of stupidity, not of bias.

* * *


IBM stock is down $5.83, or 3.3%, at $180.99, in after-hours trading

Well, this BARRON’S headline and the first story about the actual IBM third quarter release pretty much sums it all up. Looks like our expectation is coming true…

IBM Off 4%: Q3 Revenue Misses, EPS Beats; Maintains Full-Year EPS View

Looks like our expectations are coming tru​e.  IBM is continuing to shrink. And the stock market is finally starting to realize that there is no quick fix to its challenges.  The company is simply stuck in a place, like a giant with feet of clay, just as we said in April 2012, when we first identified this declining trend (see Big Blue Feet of Clay).
Big Blue in Small Pond
What’s worse, the company’s management seems to be living in a bubble of its own ​making, detached from reality. Even of its own numbers. Check out this oxymoronic statement from IBM’s third quarter release:
Growth Markets 
Revenues from the company’s growth markets were down 9 percent (down 5 percent, 
adjusting for currency). Revenues in the BRIC countries — Brazil, Russia, India and 
China — were down 15 percent (down 12 percent, adjusting for currency). 

This IBM business segment is down 9 percent, the biggest countries (BRIC) are down 15%, and the company management is still referring to them as “Growth Market”?! China, on the other hand, a part of the BRIC, was down 20%, according to Mark Loughridge, the IBM CFO. And most of it was due to a lack of demand for IBM hardware (China accounts for about 5% of IBM and 40% of that total is hardware, said Loughridge).

But Japan, the largest IBM Asian country, was down 17%. And so was Russia, along with Eastern Europe, which declined in double digits.

Undaunted, Loughridge predicted that IBM “growth markets” would return to “mid single digit revenue growth” – next year.

Hm… Here’s what Loughridge said in April 2012 about these so-called “Growth Markets”:

“Once again, our growth initiatives led the performance. Our growth markets initiative is based on expanding into new markets, building out IT infrastructures and leading in targeted industries.” And we all know what happened since April 2012, don’t we?Finally, the Total Signings in the company’s biggest business segment – services, by far the most significant Screen Shot 2013-10-16 at 2.12.37 PMindicator of future IBM revenues, was also down 7% in this quarter ($12.3 billion).

So is there any wonder the stock is down? As one of the analysts said in the post-earnings conference, IBM’s recent performance is “way out of whack” with its historical trends. He also pointed out that the only reason the IBM third quarter earnings APPEAR to be up was, what this writer calls, “financial engineering” factors (much lower tax rate, excluding some one-time charges, etc).

Over a longer period recently you’ve had six straight quarters were revenue growth has been negative. You’ve missed consensus revenue expectations for seven straight quarters.

“So my simple question is what’s changed in the last six or seven quarters?” this analyst asked. And “whether we should be thinking about a financial model that is more like 0% revenue growth and something less than double digit earnings growth on a sustained basis?”

The IBM CFO offered a long and convoluted diatribe which skirted around a direct answer to the analyst’s question. Loughridge’s beating around the bush could be taken as another sign of trouble in the Big Blue bubble.  For, the first step in solving a problem is one’s willingness to admit that there is a problem. Which is still clearly not the case at IBM HQ.

So SELL will probably be the operative word when the markets open tomorrow. And not just IBM. The rest of its Dow Jones cohorts are likely to be pulled down by the IBM wave rip tide.

“During the past 12 years, the move in IBM’s shares the day after earnings has accurately predicted the market’s direction over the ensuing five weeks 75% of the time,” according to Bespoke Investment Group. When IBM shares have fallen after earnings, the market has typically followed, and vice versa (see (see IBM Poised to Be Drag on DowThe Wall Street Journal, Wed 5:35PM EDT)).

“No other stock in the S&P 500 has been more consistent over the last 12 years in accurately predicting the performance of the S&P 500 over the following five weeks,” Bespoke co-founder Paul Hickey wrote to clients.

And now, IBM is developing another (unwelcome) type of consistency. Its revenues have been declining for six quarters in a row. That’s not helping the “S&P 500 Brotherhood” very much, is it?  Most of these corporate dinosaurs are reporting slow or no growth. Why? Because they are either unwilling or unable to change and adapt to the web-based New World.

Well. nothing new there. Check out this chart from 2006…

Screen Shot 2013-08-08 at 8.14.41 AM

Which is actually an updated version of a 1996 chart we showed the then IBM CEO Lou Gerstner when he told him he had hitched the IBM wagon to the wrong train (see Louis XIX of Armonk).  He did it anyway.  And IBM is still doing it.


PS: By the way, while we were writing this update, the IBM stock was plummeting like a rock. As of right now, it is down over 11 points (down 6%)!

After Hours : 175.60 Down 11.13 (5.96%) 4:57PM EDT – Nasdaq Real Time Price

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Top 10 IT Cos. Mkt Cap Trail P/E Change   Mkt Cap Trail P/E
15-Oct-13 17-Jul-12
Apple $453.05 11.33 -20% $567.53 14.01
Microsoft $287.30 14.73 15% $249.17 9.19
IBM $202.28 13.98 -5% $211.84 14.93
Google $293.73 22.08 56% $188.02 20.90
Oracle $149.26 20.14 2% $146.08 18.01
Cisco $124.28 13.56 43% $86.94 16.04
Facebook $120.55 76% $68.54
Intel $116.53 9.98 -9% $127.69 10.79
SAP $86.25 24.36 19% $72.54 20.09
EMC $51.29 19.94 7% $48.13 23.05
Avg Top 10 IT $188.45 16.68 7% $176.65 16.33
Avg Top 15 16.01
IBM stock on 10-15-13 $184.66
IBM @ Top10 P/E  22% $225.58 $14.09  (EPS)
IBM stock on 7-17-12 $183.65
16-Oct-13    Source: Annex Research

* * *

Global IT Leaders – Business & Stock Performances
Market Stats
Industry Market Change  Value       P/E Change 
Segment Cap from Gained/       Ratio from
2013 ($Bill) Jul-13 (Lost) ttm Jul-13
1 Apple Consumer $453.05 13.2% $52.71 12.43 22.1%
2 Google Consumer $293.73 -4.1% -$12.49 25.52 -7.6%
3 Microsoft Software $287.30 -3.6% -$10.58 13.37 -27.4%
4 IBM Conglomerate $202.28 -5.0% -$10.69 13.11 -1.1%
5 Oracle Software $149.26 3.1% $4.55 14.07 1.7%
6 Cisco Hardware $124.28 -10.4% -$14.35 12.46 -13.5%
7 Facebook Consumer $120.55 92.4% $57.90 223.00  !!!
8 Intel Hardware $116.53 -1.9% -$2.28 12.64 5.9%
9 SAP Software $86.25 -3.8% -$3.38 22.53 -5.7%
10 EMC Hardware $51.29 -2.1% -$1.10 19.52 -3.4%
11 Accenture Services $45.99 -5.6% -$2.71 14.51 -14.2%
12 HP Conglomerate $43.80 -13.3% -$6.71 LOSS
13 Yahoo Consumer $34.06 15.5% $4.58 9.19 16.3%
14 Dell Hardware $24.32 4.0% $0.93 18.03 43.2%
15 Fujitsu Conglomerate $8.08 -5.0% -$0.42 LOSS
Totals/Averages $2,040.77 2.8% $55.96 31.57 97.2%
w/o FB 16.01 5.2%
16-Oct-13    Source: Annex Research ttm – trailing 12  months;  MC/E – market cap/equity

* * *


Annex logo web

[click on images to enlarge]

Screen Shot 2013-08-21 at 6.16.28 PM 

All lines point south. Except stock price. To see real HP, one must turn Wall Street’s view upside down. 

HP Declining ibm

IBM & HP: Two Peas in a Pod

virginia-rometty-IBM Meg Whitman

It has been more than seven years when I wrote the story IBM vs. HP: A Tale of Two Blues (June 2006). If I were to do it today, its title would be “Two Peas in a Pod.” Both computer giants are shrinking. Both are stuck in place while desperately trying to create an impression of change. Neither is able to break the shackles of their corporate cultures. But only one has been favored this year by Wall Street. HP stock is up 78% in 2013 to-date.  God only knows why…

New-York-Stock-Exchange-building         HP logo upside down

Which is why it might be instructive to bring back that image we published a few weeks ago.  There is no room for reason at the Wall Street manger. What’s been happening with the HP stock this year is another proof.

* * *


HP’s third quarter results were “on target,” as far as Wall Street is concerned. Yet its stock dropped 8% in after-hours trading. Why? Because investors may be starting to realize that they have been falling for their own hype. Just as what happened with IBM last month.

Screen Shot 2013-08-21 at 6.38.09 PM

In HP’s case, the latest results marked the eighth consecutive quarter of year-to-year revenue and EPS declines. In other words, HP’s downward trend is even longer than IBM’s.

And no wonder. All major HP lines are shrinking. The PC unit was the worst performer in the latest quarter. Revenue dropped 11%. The printer unit fell 4%. Enterprise group and enterprise services each declined 9%.

HP CEO Meg Whitman said on today’s earnings call revenue growth is unlikely before the close of the fiscal year ending in October 2014. That sent the stock tumbling.

Well, at least the HP CEO is being a little more realistic than the other Big Blue CEO.  When IBM disappointed the market with its second quarter results last month, CEO Ginni Rometty continued to promise a turnaround.

“We expect continued improvement through the second half of the year,” she said in a release (see IBM in Troubled Waters Again).

Actually, neither company is doing anything radical enough to constitute real change. Both will need to basically reinvent themselves from ground up if they are really to move up. Neither seems willing or able to do it. Maybe they should spare their shareholders the agony of watching their favorite Big Blues shrink year after year.

We are reminded of a September 2007 luncheon conversation this writer had in New York with Professor John Persival of the Wharton  School of Business.38_UN_24

“Commoditization is driving the growth and (leading to) lower margins,” he said.

To I pointed out that growth and margins needn’t be mutually exclusive.  Creative companies can have both. I cited Apple and Google as examples. “They are experiencing both high growth and high margins,” I said.

The professor agreed.  “All these companies (industrial era relics) used to be Apples and Googles once,” he replied.  “But they lost that edge.  And now they have to choose between growth and margins.”

And then he dropped a bombshell. He said that managing a company to extinction was “a viable low risk management strategy.” (see Globalization Pandemic, Oct 31, 2007).Kodak

Prof. Persival then cited Kodak as a case in point. It was a prescient example. For this American legend founded in 1880 filed for Chapter 11 bankruptcy in Jan 2012. Creditors stand to get only  4¢ or 5¢ on the dollar for their investments and that they’re entitled to be paid before shareholders are. Generally, holders of common stock do not receive anything for their shares when a company emerges from bankruptcy.

See what I mean about saving the shareholders the agony?

By the way, perhaps you have noticed the juxtaposition of the HP logo to help see the real picture at that company today?

HP logo upside down HP logo

What do you suppose missing suffix of “dy” should be? Dy-ing or dye-ing? You decide. 🙂

Happy bargain hunting!