Wall St. Is The Customer?

 

Cringely had another post about IBM and the implications go far beyond just one company. I’ve posted about IBM before.

https://theartsmechanical.wordpress.com/2016/03/23/ibm-is-dying/

If Wall St.  and the need to make earnings reports the drive of the business It’s not going to work out very well, for anybody.

In order to understand that we have to also understand who is IBM’s customer. Peter Drucker wrote that the purpose of the corporation is “to find a customer.” Well who is IBM’s customer if the company is effectively cutting one of the divisions it is relying upon for future growth?

IBM’s customer is Wall Street.

IBM’s products are earnings-per-share, dividends, and share buy-backs, not hardware, software or computer services.

This morning I took a quick look at IBM‘s 1Q16 statement.  It was interesting what was stated, how it was stated, and what was not stated.  They signed $4.2 billion in Analytics and $2.6 billion in Cloud business.  The rest of CAMSS was puny.  If Analytics is doing better than the rest, why mess with it?  How many billions have they spent to make $11 billion a year on cloud?

IBM has mostly reported revenue.  Part of the company’s sales culture, it is what you sign in deals that matters.  But how much profit is each division making?  That is how most companies are managed.  IBM‘s big money maker is services and that is losing business.  IBM wants to keep Wall Street off the scent and keeping reported earnings up is critical.  So they’re cutting deep with no severance. This is all about buying time until the new business gains traction.  However if the new business doesn’t make as much profit, that is going to be a big problem.

This is a very scary gamble for IBM.

The Problem with Analytics

One trend that I keep running into is that corporate stick ownership is becoming more and more a matter of institutional rather than individual ownership.  More and more companies are essentially owned by mutual funds and other institutional funds.  Which means that the ownership is diffused rather than concentrated.  As is the responsibility.  Which means that Wall St. money managers are running the show.  The problem with that is that right now the whole Wall St. market is becoming more of a inflation pump for the Fed and a way to get companies further into debt.

That doesn’t look like it’s going to change.  Vanguard, for instance, is attracting large sums of money.  But that’s not a good thing.  The problem is that the more diffuse ownership, but more concentrated money becomes the more likely that one mistake can take the whole thing down.  With nobody to watch the store you risk the whole thing becoming a huge house of cards with strong winds possible. Add this possibility to the fact that many, if not most people are counting on the assets in pension funds and 401k’s for retirement and the aging population and this could be a huge catastrophe for people my age.  A catastrophe brought on by the oh so smart thinking of our elite class and short term thinking.

http://news.morningstar.com/articlenet/article.aspx?id=753738

Companies like IBM, with their layoff schemes and stock buyback programs may think that what they are creating value for the company.  What they are doing is wholesale asset and value destruction.  By having ever more round of layoffs, all IBM and the rest are doing is systematically destroying their businesses and the ability to grow.  They might as well be calling Larry here, on the phone, right now.

At least he understood the value of assets.

For more on the dysfunctional economy click Here or on the tag below.

2 comments

  1. penneyvanderbilt · May 25, 2016

    Reblogged this on KCJones.

    Like

  2. Pingback: Job Stuff 38 | The Arts Mechanical

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