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It started the moment they began divesting of real estate and various
divisions that produce 'stuff' instead focusing on groups that produce
'billable hours'.
The irony is that of IBM's four main business units, the consulting arm (Global Business Services) is the LEAST profitable and a drain on earnings per share (comparatively).
Profit Margins From the 2012 Annual Report:
Global Business Services 30%.
Global Technology Services 36%.
Systems & Technology 39%.
Software 89%.
The profitability of IBM's software is quite remarkable. I bet the profit margins on IBM i are above 90% due to its maturity, stability, and adaptability.
Another irony is that the business unit that manages data centers (Global Technology Services), which is also the one doing the most off-shoring and out-sourcing, is the one that is chalking up the most high-profile failures. The Disney account is a good example. Disney outsourced their IT operations to IBM. IBM off-shored to India. When the contract came up for renewal, Disney decided to deal directly with HLC Technologies out of India, rather than IBM. That contract was valued at something like $200 million.
Disney of course is just one example. There are dozens of cases where Global Technology Services has taken a hit. Amazon beat IBM out of a CIA contract valued at $600 million. IBM complained, but to no avail. IBM lost a bid for a new ERP system for the state of West Virginia valued a over $100 million. IBM protested when it was awarded to CGI (out of Canada), but to no avail. West Virginia is now in the process of retiring their IBM mainframes.
If IBM and Lenovo were able to come to terms on the sale of IBM's Intel Server business, that would be a step in the right direction. That would reduce the internal competition between IBM's Intel platforms and Power platforms.
It would be ideal if IBM divested most of the Global Services business and returned to its roots of Systems and Software, which are the most profitable. That would really unshackle IBM i on Power.
-Nathan
midrange.com
