I was delighted to see the news about your decision to cut loose IBM’s managed-services infrastructure business so it can become a separate company.
And I’m hoping that with your bold move, you’re just getting started in turning IBM into a customer-centric AI and data powerhouse unencumbered with moribund businesses that drain resources, dilute essential focus, confuse customers, and turn off investors.
#1 Microsoft has a market cap of $1.6 trillion
#2 Amazon has a market cap of $1.6 trillion
#3 Salesforce has a market cap of $237 billion
#4 Google has a market cap of $1.01 trillion
#5 SAP has a market cap of $185 billion
#6 Oracle has a market cap of $183 billion
#7 IBM has a market cap of $117 billion (sharply up on news of that spin-off)
#8 Workday has a market cap of $53.1 billion
#9 ServiceNow has a market cap of $95.2 billion
#10 Adobe has a market cap of $235.5 billion
So, while the numbers speak very clearly for themselves, I’d just point out that IBM’s market cap is:
- half that of Salesforce’s, even though your revenue is about 4X larger;
- only 20% higher than ServiceNow’s, despite the fact that your revenue is about 18X higher; and
- is a little more than twice as big as that of Workday, whose annual revenue is about $4 billion compared to yours of about $75 billion.
It would seem that the overall market is not convinced that IBM can be a growth company, despite the fact that your cloud revenue grew about 30% last quarter.
Of course, investors don’t equate to customers, but I’d argue that any customer considering a mid-level to high-level deal with IBM is taking a very long and hard look at your financials, including your market cap.
Because customers want to align with winners, with companies that pulse with innovation and speed and confidence and digital capability.
And I could argue that IBM’s market cap is a clear indication that your company is not perceived in that light.
Now, again, the nice jump in your share price today indicates that the market’s impressed by your willingness to swing the axe. And I would recommend that you keep swinging at each and every other part of your sprawling business that does not align precisely with the description of the newly streamlined IBM expressed in yesterday’s press release:
This platform facilitates the deployment of powerful AI capabilities to enable the power of data, application modernization services, and systems. These are all underpinned by the security, unmatched expertise in industry verticals, and deep commitment to open source innovation…
Of those new priorities, nobody could possibly argue with “the deployment of powerful AI capabilities to enable the power of data,” and you’ll get plenty of interest in “application modernization services” as well.
But then comes that key on the IBM piano that sounds increasingly discordant, tinny, and out of place: “systems.”
Please take another look at the Cloud Wars Top 10 list above: which of your peers—the companies against which you will be competing very directly in a fiercely contested marketplace—is investing in or is still vested in “systems”?
Well, what the heck do I know—I’m just a slob in his pajamas pecking away at a keyboard—but in your new cosmological array, “systems” seems to be playing the role of the black hole. So please be careful that its unearthly gravitational attraction doesn’t suck in the rest of the newly invigorated IBM business.
I find it interesting, Arvind, that way back in IBM’s history, in the earliest days of the company 110 years ago, IBM’s corporate predecessor made cheese slicers and meat slicers. No doubt they were the right products for the times and for the company.
And I’d guess that in the same way that many people are stunned to hear that IBM used to make food slicers, people not too far into the future will look back in wonder to see that in the year 2020, IBM still believed that “systems” were essential to its mission to become hybrid-cloud powerhouse.
Anyway, at least for now I stick by the report card I gave you three months ago as chronicled in Why IBM CEO Arvind Krishna Earned an A+ for his Debut Quarter. And as I said, I really like what you’ve done with the spin-out of managed-services infrastructure.
But as long as “systems” remain a core element of the “new” IBM, I think you’re going to find it hard to keep that A+ going.
All the best,
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