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 (http://djurdjevic.com/). 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 …
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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… 🙂