#IBM

Dennis K. Berman:

For the last 20 years, IBM has been an avid, methodical buyer of its own stock. In 1993, it had 2.3 billion shares outstanding. Today it has 1.1 billion, shrinking at more than 1% per quarter over the past few years. At that pace, there will be no more publicly traded IBM shares left by 2034.

Sort of crazy. But that’s good news, right? Doesn’t that mean that IBM’s management feels its stock has a lot of value? Not necessarily:

Look deeper at IBM and dozens of mature U.S. companies, and you can sketch a different, more ominous, story: That CEOs are in fact stuck, reluctant to build new plants, launch products or pursue an acquisition.

By rote and by fear, they are pitching their billions into buybacks, nearly $1 trillion from the 100 largest companies in the S&P since 2008. In the 12 months ending in September, the total dollar amount of all corporate buybacks increased by 15% from a year earlier, according to S&P Dow Jones Indices.

$1 trillion since 2008 even though the numbers all seem to point to returns being clearly better when making long-term investments in the business (see: Amazon). But that seems risky for any CEO. As Berman concludes:

And so here it is in 2014, five years since the worst of the financial crisis. Are they playing to win? Or still playing not to lose?

And guess what: it’s actually worse than that. With the earnings miss today, IBM officially missed its revenue target for every quarter in 2013. They’re playing to lose.

Taylor Soper:

The Microsoft co-founder said that there was an option to make a single button for such a command, but the IBM keyboard designer didn’t want to give Microsoft a single button. So Microsoft decided to use “Ctrl+Alt+Del” as a way to log into Windows. “It was a mistake,” Gates said, drawing a big laugh from the crowd.

Sort of amazing that such a user-unfriendly key sequence became a mainstream thing.

The competition has been aggressive during this period of uncertainty, but we are, as we have always been, determined to prove to you why Dell is the best solutions provider to meet your needs.

Michael Dell, in an open letter to Dell’s “customers and partners” about his ongoing efforts to take the struggling company private. 

Just how bad is the PC industry right now? Focus on the “solutions provider” part. IBM doesn’t get nearly enough credit for being way ahead on this move.

Great profile of Reed Hastings by Ashlee Vance for Bloomberg Businessweek. Three standouts:

The master copies of all the shows and movies available to Netflix take up 3.14 petabytes of storage space. (In comparison, Facebook uses about 1.5 petabytes to store about 10 billion photos.) Hollywood studios used to send individual films and shows to Netflix on a disc or thumb drive; now they use a Netflix system called Backlot to send encrypted files via the Internet. Netflix then compresses the files and creates more than 100 different versions, each tuned for the varying bandwidth, device, and language needs of its customers. (An hour of video for the iPhone would be about 150 megabytes.) This compressed catalog comes to about 2.75 petabytes.

Wow — also, Pi.

And:

Netflix began to experiment with cloud services from Amazon and Microsoft, where Hastings served as a board member. In 2009 he bet his company’s future on Amazon. Up to that point, nothing the size of Netflix had placed so much of its crucial technology on Amazon’s systems. Hastings sent an e-mail to Amazon CEO Jeff Bezos, announcing his plans. “I asked him if he was comfortable with that idea,” Hastings says. “If not, there was no point going forward.” Bezos gave the go-ahead.

That seems like a pretty large diss of a company where he’s a board member — especially when you consider that Amazon is now a very direct rival.

And finally, the best for last:

Qwikster was a fiasco, but far less threatening than a debacle that preceded it. In August 2008, Netflix’s technology infrastructure melted down. This was when the company was still known for DVDs-by-mail, and for three days it could not send discs because a crucial Oracle database kept malfunctioning. Reporters and customers took notice. Netflix traced the problem to an expensive, third-party storage system that went haywire after a software update. The incident still annoys Hastings. When the subject comes up in the watchtower, Chief Product Officer Neil Hunt, who’s also gathered at the table, suggests they not mention the storage-system vendor by name. Hastings responds, “Let IBM have it, baby.” (An IBM spokesman declined to comment.)

Said another way.

Charles Duhigg and Steve Lohr in their in-depth look at the tech patent fiasco for The New York Times:

The number of patent applications, computer-related and otherwise, filed each year at the United States patent office has increased by more than 50 percent over the last decade to more than 540,000 in 2011. Google has received 2,700 patents since 2000, according to the patent analysis firm M-CAM. Microsoft has received 21,000.

In the last decade, the number of patent applications submitted by Apple each year has risen almost tenfold. The company has won ownership of pinching a screen to zoom in, of using magnets to affix a cover to a tablet computer and of the glass staircases in Apple stores. It has received more than 4,100 patents since 2000, according to M-CAM.

So, Google has received 2,700 patents since 2000, Apple 4,100, and Microsoft 21,000. In other words, Microsoft has been granted three times the number of patents in the past 12 years as Google and Apple combined.

This is interesting because it’s pretty well known that Microsoft used to take a lackadaisical approach to patents — until they started getting burned. The same was apparently true of Apple (as you can tell from this story) until they started getting burned. This past year has been all about Google (directly or indirectly) getting burned. Now they’re stockpiling patents as a result too.

By the way, while it may seem like Microsoft has been granted an insane number of patents, they’re not even close to the top of the list. That would be IBM, which has been at the top for 19 straight years. In 2011, they actually set a new record with 6,180 patents awarded. In other words, the total number of patents that Google and Apple were awarded together over the past 12 years was almost matched by IBM last year alone.

It’s probably not a coincidence that IBM dominates here — it sure looks like a trend. Again, companies start out not worrying about patents, get burned, then go into patent beast mode. IBM has just been around longer than the others.

That’s not IBM. That’s not HP. That’s Dell.

But you’ll notice the trend. Everyone is getting out of the PC business because it’s a shitty business to be in.

IBM was way ahead of the curve (and is reaping the rewards as a result). While seemingly insane at the time, HP had the right idea last year (then backtracked and got burned last quarter). Now Dell.

You often hear the argument that Apple will eventually be squeezed in their high-margin hardware businesses. That cheaper components will drive costs down and cheap products will win. But that “win” comes with an asterisk. It’s a short-lived win. Eventually, it will turn to a loss both figuratively and literally. 

One of Apple’s strengths is the quality of their products, which allows for better margins. But their real strength is staying ahead of trends. By the time Apple dropped “Computer” from their name in 2007, they were already a different company.

They still make computers, but they have long since become a secondary business massively trumped by other businesses (first the iPod, then the iPhone, now the iPad).

Dell has lacked such foresight. Maybe it’s too late now, or maybe not. But I like John Gruber’s suggestion.

Update: As Jack Schofield points out, Dell also dropped “Computer” from their name in 2003. The difference is that when Apple did it, they were actually becoming a different company. Dell was doing the same old — which is why they had to make that statement today, nearly a decade later — though they were thinking about getting into printers. Which is funny for an entirely different reason.

Now that Apple has far surpassed Microsoft in every financial category (market cap, revenue, profit), what do we watch for? I think one interesting thing will be when Apple passes HP in revenue.

While Apple’s market cap is roughly five times that of HP, the world’s largest PC-maker still pulls in more revenue. How much more? About $25 billion, over the last four quarters. But Apple’s revenues are growing so fast that this could fall in the next year. 

Of course, while Apple is behind in revenue, they’re far ahead in profit. Even though HP pulls in $125 billion a year in revenue, they’re only doing about $11 billion in profit. Apple has done over $23 billion in profit in the past year.

Meanwhile, I have to run the numbers again, but I think Apple is now making more yearly revenue than another old-school powerhouse: IBM.

Update: Apple still slightly behind IBM over the last four quarters in terms of revenue: $104.6 billion to $100.32 billion. That will change next quarter, I imagine.