It used to be that IBM was the bellwether for the technology industry. As went IBM, so went the industry. Of course, for the early years of my involvement in technology, IBM was the technology industry, or a sufficiently large percentage of it that this was almost a tautological statement. IBM had its fingers in everything. Literally everything.
No longer is any of this true. IBM isn’t in everything. For us old-timers, it’s still hard to think of IBM as first and foremost a services company but that’s clearly what it is. For my career, November of 1981 was a watershed moment, when IBM introduced its original PC. I spent much of the the next 20+ years of my life chronicling the evolution and revolution that IBM fomented with that introduction. But that’s not the IBM of today. They long ago lost the standards-bearing battle in the industry they effectively launched and today don’t even make PCs any more.
What causes me to reflect on this is IBM’s remarkably strong earnings announcement of yesterday. Does their strength bode well for anyone else in the industry or has IBM in fact become a leading negative indicator? IBM’s strength is due to a few factors:
- Increased outsourcing, driven by staff reductions and demand for much greater flexibility.
- The early impact of the Satyam affair and subsequent deep questions about the Indian outsourcing industry overall. Already the economy was driving consideration of “near-sourcing” and IBM was starting to benefit from that. The Indian affair, while late in the quarter, only added to the IBM momentum and is certainly a factor in their rosy outlook.
- Even mainframes performed well, as customers look to significantly consolidate their hardware expenditures on more heavily utilized machinery. While virtualization is likely to be the biggest winner in this space, better leveraging the installed base, IBM showed that there’s at least some strength in new sales of a more mature solution.
This is all happening against the following backdrop:
- Intel reported dramatically reduced earnings;
- Oracle had a rare layoff; and
- Microsoft is rumored to be contemplating layoffs, a rumor in which we place great credence. They announce earnings tomorrow and a workforce reduction announcement is likely to accompany the earnings report.
Clearly, IBM is no longer the tech bellwether. I’m not prepared to call them a negative indicator because I can contemplate scenarios under which IBM performs well even while the sector recovers broadly. But don’t look to IBM for hints where technology is going. For better (now) or worse, IBM is off on a different trajectory. It used to be said that “as goes GM, so goes America.” Let’s hope not as the announcement came today that for the first time in over 80 years, GM did not sell the most cars in the world — Toyota did. So too it used to be the maxim that “as goes IBM, so goes technology.” No longer, and never again.