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So whither IBM? There is no doubt that before the problems of the late eighties, IBM was a wealth creator and a growth stock. However, when Mr. Gerstner was brought in, he saw a company whose resources could no longer be supported by its income. There are two approaches to this problem: cut resource to match income generation capability or develop new products to occupy the excess resource. Like most company doctors, Mr. Gerstner chose the first option and did an excellent job - but I believe all the benefit from this activity is now fully reflected in the stock price. Following this reconstruction, however, there continues to be the necessity of competing in the IT marketplace as it develops and of providing customers with the products they wish to buy.
In terms of moving IBM forward, what Mr Gerstner has principally done is to expand activities which were in place when he arrived - enhancing mainframe systems, enhancing mid-range systems and adding more services. What he hasn't successfully done is come up with innovative products in that part of the IT marketplace which is accounting for an ever increasing proportion of business IT spend: a marketplace which revolves around the desktop and its associated architectures and communications systems. As a consequence of this, the IBM stock price has spent the last year prosaically tracking the Dow and stands on an undemanding P/E ratio in the 20s, whilst the technology sector is booming. Even quality companies are commanding multiples more than twice this: look, for example, at how Microsoft, a strong competitor in this marketplace, is rated! What this means is that IBM's failure to compete successfully for client/LAN/server/internet business is costing every stockholder at least $100 in the share price. The corollary, however, is that there is tremendous upside potential if IBM were to compete for the money being spent in and around the desktop.
If IBM does not attack this marketplace, then the stock will probably gradually be re-rated into an income stock. Whether or not IBM remains a player in the wealth creation process could well, therefore, be in the hands of its institutional investors. These will either bring external pressure on the board to do something or they will quietly advise their clients to view the IBM Corporation in a different light - as an income stock which can only be expected to grow its capital value more or less in line with the market.
The $64 question therefore, is whether the jury is still out or whether attitudes have already begun to change.
I've just read your editorial and I'm very surprised by the announcement of the end of the TBJUG. Is there really a lack of interest in Java from the public? I don't think so, even if it's true that Java is lacking desktop software. But the industry is moving quickly to Java. I'm a member of the French club-java (http://www.club-java.com/). The membership costs 2000FF (around 30US$) a year. The club is quickly growing with at least one new subscriber a day! We organize Java conferences in Paris with about one hundred people each time. The conferences are free for the members of the club.
Java is growing everywhere: cell phones (especially Nokia ones), Palm Pilot, Psion, Web Phones, server side applications (from web servers to applications servers), data base (look at Oracle 8i) and even on the desktop (spreadsheet Formula One for instance). In many cases, Java is there but isn't visible to the user.
As an OS/2 user, my fear regarding Java is a lack of support from IBM to implement Java 2 on OS/2. As for me, the choice is clear: I'll do Java, because if I need to leave OS/2 one day, I would have more freedom if my software was Java based.
Season greetings.
Thanks for the excellent web site. I enjoyed your editorial this month but do have some comments:
You made mention that the DOJ versus MS case could be appealed all the way to the Supreme Court which could take until 2004. I agree with you that a settlement is very unlikely as Gates seems to believe his own propaganda these days, however, I do not see the appeals process taking until 2004. My prediction: The Supreme Court will have completed review of the case no later than a year from now. If ever a good argument could be made for using the "fast-track" to take a case directly to the Supreme Court this case has it.
You didn't mention the tremendous consequences of MS not settling. This is the anti-trust case of all anti-trust cases. Getty could have only dreamed of the market share MS enjoys. My prediction: If MS does not settle and the verdict is published, I expect the largest flood of tort law suites against a single company this planet has ever seen. MS has stepped on a lot of folks that would like to get even.
You didn't mention (as most publications aren't) the fact that if MS doesn't settle then Mr Gates and some of his upper exec's could/should be taken to trial. Our anti-trust legislation calls for criminal trials for those violating the laws. Very often you don't see criminal charges in anti-trust cases as the illegal activities are in very gray areas that would make it difficult to get convictions. Well, this case and many of the illegal activities contained in it are not in the gray area-they are blatant violations. Can you see Bill running MS from the Maxwell minimum security prison?
Here is an exert from an article I wrote a couple of weeks ago:
The following options for correct action have made the news:
1. Force Microsoft to publish the proprietary source code to the Windows operating system;
2. Force Microsoft to auction the Windows source code so two or three other companies could sell competing systems;
3. Split Microsoft into several companies each holding all the source code and intellectual properties for Microsoft products, but in competition;
4. Split Microsoft into three companies: one holding the operating systems; another holding the application products such as Word and Excel; and the third holding the Internet and related products.
I do not think any of the above corrective actions are the answer. We do not need a bunch of Baby Bills! We have been years getting one Bill under control, we sure don't need more. We also don't not need to spread Windows more than it already has been, we need competing operating systems. I feel that the DOJ will listen to our good ideas if we get the ideas to the DOJ. I'd like to see a section of one of the popular OS/2 web sites set aside a page to keep a document that can be updated with the good ideas OS/2 users submit. That document can then be copy and pasted by OS/2 users and sent to the DOJ. (Anybody got a good e-mail address?)
What are some of the corrective actions I feel the judge should consider?
- Mandate that MS must charge the same amount for each copy of each product they sell no matter who it is sold to. For example, Joe Consumer would pay the same price for Win98/Office out of a local retail store as Compaq would pay for the copies they pre-load. (This is easy to understand and easily enforced).
- Mandate that MS is prohibited from linking products. The sale of one product cannot be contingent on buying another.
- Mandate that MS is prohibited from excluding competing products.
- Prohibit MS from selling put calls on their own stock. A financial technique that MS uses to make a lot of money and it appears MS takes this technique beyond what the SEC would consider above board. Pssst...How 'bout you guys at the DOJ ask your buddies at the SEC to take a look at this one.
- Prohibit MS from offering stock options as a method of getting and paying employees.
- Microsoft be required to relinquish all copyrights and other rights to all source code and methods that are part of any competing operating system.
- Mandate that MS release and continue to release the details/source code to the proprietary data formats their programs use: .doc, .xls, etc.
- Mandate that MS not be allowed to announce any product prior to 60 days before it is released.
Now I agree with that, as anything other than an MS product gives MS a run for the money, but I disagreed with the statement I heard after that: "Linux is the only alternative to the Windows Platform."
Even though the reporter went further to say that the home PC market is still growing.....
There are too many OS/2 products out there, and too many of us that know that OS/2 is one of the best.
But still when I approach my clients with an OS/2 solution, most have not considered OS/2 let alone heard of it. Which is really a sad testimony on our part. We have all of these great pubs on-line, and all of this cool software, and a host of projects. But no one knows about it!
I was on-line in the Talkcity Chat room #Computing-OS/2 and found out most of the OS/2 users are set in their ways. Well, it's time to change! Let's make known the points of OS/2, and push our OS of choice or the coming year will be another one for OS/2 in the closet.
Regardless of what IBM is doing, it's up to the users of OS/2 to demand products, and hardware support, and let it be known that we still use OS/2 and would like to see it around, and functional!
Have you been to the Java Briefing Days? Seen alphaWorks? DeveloperWorks? the Lotus division products? Server products? I don't need to ask about Warp.
Maybe you did not blow this one, well yet, maybe.
An ever-increasing proportion of business IT spend is being directed at the client/server/networking marketplace. Driven by new potential channels to market and the emergence of e-commerce, new applications are being developed independently of legacy systems, accessing necessary legacy data through various middleware platforms.
Over the past few years, in the course of my employment (I work in the IT services sector) I have called on many customers contemplating investing in CRM and e-commerce. Overwhelmingly, these customers have a Microsoft strategy: what they actually mean by this is that their software infrastructure will be NT server/NT client/Exchange/Office/IE. Microsoft has successfully positioned and integrated these products such that the whole is greater than the sum of its parts - a very attractive customer proposition.
It has been four years since I called on a customer who had an IBM strategy for these new applications and the reason is fairly clear. Although IBM has equivalent products - Warp Server/Warp client/WSOD/Notes/Smartsuite/Communicator - the company has done little, if anything, to pull these together to offer customers an alternative proposition, apparently preferring to let each take its chances in the marketplace as a point solution against, primarily, the Microsoft proposition described above. I believe this to be a major market exposure.
As a consequence of not competing with product offerings in this marketplace, IBM is reduced to selling services. This is akin to standing on the sidelines whilst the competitive auction takes place on the pitch and then approaching the winner to see if any assistance is needed. Whilst feeding off the crumbs from someone else's table might bring reasonable business, it is not a growth strategy. There are good examples of companies who have followed this path, e.g., CDC, Unisys, ICL - and they are now characterized by having a legacy manufacturing business and trying to establish themselves as vendor independent IT services suppliers, even to the extent of undermining their own products to support this stance.
In my view, therefore, the future of OS/2 will be inextricably tied in to whether or not IBM decides it wants its share of the customer dollars being spent in the client/server/networking marketplace, or whether the company will be satisfied to take a back seat and exist off the services which fall out. I believe these sorts of considerations have played their part in generating recent analyst cautionary statements about IBM stock.
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