International Business Machines Corp. (NYSE: IBM) was America’s great tech company before Apple, Microsoft, or Alphabet. Its brand was famous. IBM topped lists of America’s most admired companies. However, it recently announced layoffs as part of its push into the artificial intelligence (AI) future, which is the future of the tech world. The company has almost no position in that sector now, and never will.
IBM tried to convince investors that the plan is to move more aggressively into software. “We routinely review our workforce … and at times rebalance accordingly.” Better just to say it is a Hail Mary at the end of a game that has run out of time. (IBM did say its workforce would stay at current levels.)
For years now, the company has been too small to matter as a partner for any of the AI giants, which have formed massive partnerships that usually include OpenAI and Nvidia. IBM lost whatever clout it had decades ago. For instance, in 1980, it ranked ninth on the Fortune 500, America’s largest companies based on revenue. Since then, it has missed the opportunity to lead in personal computers, PC operating systems, e-commerce, tech operating systems, search, and, more recently, AI. It is hard to find a tech company that lost that many chances to be a leader.
Its most recent earnings were disappointing. Revenue rose only 9% to $16.3 billion. Earnings rose to $1.87 per share from ($0.36), but this was offset by a charge in the year-ago quarter that affected earnings. Yet, a more accurate way to view the numbers is by operating (non-GAAP) pretax income from continuing operations. That was $3.0 billion, up from $2.5 billion in the same period last year.
One of IBM’s wrong turns was letting Microsoft Corp. (NASDAQ: MSFT), a tiny company, take the lead in software for PCs. IBM thought the future of PCs was hardware. The decision helped build the foundation for what was to become the most important tech company for decades.
In its most recently reported quarter, Microsoft revenue rose year over year from $65.6 billion to $77.7 billion. Net income was $27.7 billion, which is nearly twice IBM’s revenue.
The best metric to measure IBM’s long downturn is market cap. Its sits at $281 billion. Meanwhile, OpenAI has a private valuation of $500 billion, and Microsoft’s market cap is $3.83 trillion.
IBM’s only bright future is to be bought by a larger company and be part of someone else’s success.
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