Founded in 1911 as a Computing-Tabulating-Recording Company, International Business Machines (IBM) needs to keep its finger on the pulse of the development of information technology not to be ousted by younger tech giants like Google, Microsoft, Apple, and Amazon. With the advent of the internet, IBM needed to widen the spectrum of its products and services to retain its strong position in the tech field. Although the company lost its dominance, having only a 5% market share in 2021, as opposed to 68% shared by Microsoft, Amazon, and Google, it has many spectacular achievements to its credit. IBM holds more patents than any other technology company and takes pride in employees who have earned five Nobel Prizes, four Turing Awards, five National Medals of Technology, and five National Medals of Science. And it had been the top tech company for longer than any of the titans dominating the market now. 

Also called “Big Blue,” IBM indeed has an impressive pedigree. After starting to produce hardware at the beginning of the last century, it thrived in this business for decades and became the leading provider of mainframe computers worldwide. IBM’s gross income had inexorably grown in the last part of the twentieth century, expanding from $14.450 billion earned in 1975 to $71.940 billion made in 1995. The company’s revenue skyrocketed to the record level of $106.9 billion in 2011, after which it has steadily been declining amidst its transition into new technologies and lines of business. To move with the times and survive the competition from other tech titans, IBM gradually shifted its focus from hardware to software and services. It began to devote more energy and money to cloud-based services and cognitive computing. IBM focuses now on offering primarily network services, application services, cloud services, digital workplace services, business processes and operations, technology consulting services, and AI services. IBM Watson, a cognitive system capable of answering questions posed in natural language, has become the company’s high-visibility offering in the technology field. IBM has a strong faith in Watson, promoting the system as a benevolent digital assistant that would help hospitals, offices, factories, and farms. The company’s white paper referred to Watson as “the future of knowing.”

To see how well IBM has prepared for, what it calls, the new age of understanding, study the statistical data presented below.

Sources: IBM, Wikipedia

Technology stocks have been battered for most of 2022. There are many names that I consider of the highest quality that have been absolutely destroyed this year, but that's not the case for all tech stocks. In fact, IBM (NYSE:IBM) has bucked the trend and has actually outperformed the broader market by a wide margin in 2022.

I've made it no secret that I don't see any reason to own IBM, including in my last update back in March. I said then the ~5% yield wasn't good enough to warrant owning the shares, unless you are focused on income and nothing else. Today, even though IBM has returned -5% since that article against -18% for the S&P 500, I still don't think this is one you want to own near a market bottom. The reason is simple; IBM is a defensive stock in tech - if there is such a thing - which is why it has outperformed this year during a horrendous bear market. When we turn higher, defensive names are the last thing you want to own, so I'm sticking to my sell call here.

Looking at the daily chart, I don't see a lot of cause for long-term optimism, although the stock is oversold on a short-term basis. We can see there have been several rally attempts, but all have ultimately resulted in another turn lower. This current rally attempt is the result of a long string of declines that produced a PPO studying near -2, which is where the stock has bounced in the past. This one is no different, but do not mistake a bounce for a rally.

The 14-day RSI, which is a shorter-term indicator than the PPO, hasn't cleared the centerline in the past two rally attempts. That's the sign of a stock with a lack of bullish momentum, and it's why I said not to mistake a bounce for a rally; this is one of the ways you can tell the difference.

On a relative strength basis, as I said, IBM has been great this year. It's convincingly outperformed its peer group, which in turn, has outperformed the S&P 500. That's the kind of thing you want to see from your stocks, but as I said, given IBM is defensive in the tech group, this outperformance makes sense during a bear market. Rest assured this relative strength will flip on its head when we do turn higher, because Wall Street wants exposure to growth during bull markets, and IBM simply doesn't have it.

Speaking of growth…

I've long maintained that IBM is a company that struggles to hit its own guidance, and therefore, estimates that Wall Street produces. This is, of course, highly undesirable because it means that when investors try to value the stock, they are doing so with shrinking estimates. Plus, there aren't many investors that want a stock with shrinking estimates, given those stocks that perform the best are the ones consistently raising guidance and beating estimates. IBM hasn't been one of those stocks in decades, literally, and today is no different.

Let's take a look at revenue, beginning with a historical view of its three major segments.

One of the things you must understand about IBM's revenue is that it is choppy. All of its segments produce oscillating revenue - rather than steadily growing revenue - and that generates the same on a consolidated enterprise basis. This is not a desirable trait, and it means that even though there's clear leadership from software, even that segment has struggled in the past to produce growth.

The most exact quarter saw software produces 8% growth in annual recurring revenue, which is fine, with the best growth from transaction processing. Red Hat continues to be a growth driver for IBM, and in my opinion, is one of the best things this company has ever done with its capital. The second best thing was spinning off Kyndryl (KD), which is now a significant customer of IBM. Kyndryl is obviously a captive audience when it comes to revenue for IBM, so as long as Kyndryl is around, IBM has some built-in software revenue growth.

But as we can see, that simply hasn't been enough, and I don't think it ever will be based on IBM's history of missing its own guidance. Below are revenue estimates for the next few years, and the revision history of those estimates.

We're looking at current estimates of 3% or 4% growth annually, but with nearly-constant revisions downward to those. The best the company can show is a lack of negative revisions on this year's numbers in the past month; it's a sad state of affairs. However, anyone that has followed IBM for any period of time knows one thing this company is always good for is missing estimates. This is not new.

Moving to earnings, below we have the same chart as above, but with earnings before taxes instead of revenue.

Software's dominance is very clear here, given margins are much better than the other segments. That means that if you insist on owning this stock for whatever reason, you want to keep a hurry eye on software's performance. The others simply don't matter nearly as much when it comes to earnings and cash flow. The fact that IBM has some growth drivers in software is a good sign, but is it enough to overcome weakness elsewhere? You can be the judge of that.

Looking ahead

We've touched on two of the drivers of EPS growth - revenue and margins - but IBM has spent tens of billions of dollars buying back its own shares in the past couple of decades. The company's "strategy" used to just be to milk as much cash from its business as possible and then spend almost all of it on repurchases, hoping financial engineering would work its magic into EPS growth. While I'm a fan of buybacks when they're done correctly, IBM's blunt force approach never worked because it forgot to stay competitive in the marketplace. Newer leadership is focusing more on the genuine business rather than just buying as many shares as possible, but the end result doesn't appear to be that different.

EPS revisions just continue to go lower, and it's still happening today, as it has for many years. This makes it challenging to value IBM on a P/E basis because you simply don't know how low the "E" part of the equation will go. That's also why Wall Street prefers stocks with growing "E" values because it means the share price must rise in order to maintain the same valuation; IBM has the opposite issue.

What's interesting is that despite IBM's complete inability to even meet estimates - let alone beat them - the stock is actually quite near its highs in terms of valuation. Below we have five years of history of forward P/E ratios to illustrate this point.

The stock trades today at 13X forward earnings, against a five-year average of 11X. It's certainly in the upper echelons of historical valuations, which is perhaps understandable given 2022 has been awful for the markets, and therefore good for defensive names. However, this overvaluation (as I see it) should unwind pretty quickly once the bull market returns. I'm of the view that the bull market has either already begun again or is quite close to doing so, and given that, names like IBM will almost certainly be discarded to the back burner again.

One quick note on the dividend is that IBM's yield is exemplary at 5.2%. It's a proper income stock, and as we can see, the yield is very high by historical standards.

If you're a pure income investor, maybe that's good enough for you to own it. I'm not, and I see no reason to own this stock other than the yield, if that's your thing.

We have a stock that is overvalued on a historical basis, has very little growth to speak of, years and years of declining revenue and earnings estimates, and no catalysts that I can see that would change any of those characteristics. The chart looks pretty weak to me, and this appears to be a bounce, and not a rally. I'm sticking to my sell recommendation for IBM as I think it's relative outperformance in 2022 is coming to an end.

Not long after I joined Creative Strategies in 1981, I received a call from IBM looking for forecasts on the PC market. At that time, the PC market was in its infancy, and it was anyone's guess then as to its future growth.

However, they had seen a quote I made to a major tech publication stating that I thought PCs could be a significant growth market and be transformational for the business market. I based that theory on my familiarity with the first spreadsheet product on the Apple II called VisiCalc. I saw how large companies bought Apple IIs and VisiCalc for their accounting departments. (Full disclosure- my wife worked for VisiCorp, the company that made VisiCalc; thus, my familiarity with the product was firsthand.)

That led to a set of research assignments from IBM, and for many years I worked with them on various projects related to the growth of the PC market at the product and channel level.

One of the most interesting programs I was asked to help with was the design of their original laptop in late 1985. At that time, IBM only made large PCs with separate monitors, mostly in battleship grey.

Earlier that year, at CEBIT, a major technology show in Hannover, Germany, Toshiba introduced what became the first genuine commercial clamshell laptop design called the T100.

I was at that CEBIT show and the launch of the T100, and I asked to "borrow" it to help me cover the show. Of course, Toshiba denied this request, although they did get me one to test once I was back in the U.S.

IBM was deeply interested in the Toshiba T100 design, and the IBM design group in Austin, TX asked me to consult on the project. So for about a year, I would go between Austin and Atlanta, where part of IBM's technical design was developed, and Boca Raton, where the marketing strategy was developed.

This led to IBM introducing the 5140 in 1986.

This first product was still in the luggable category of personal computers, but soon after it was released, IBM launched its first series of clamshell-based laptops. IBM's first clamshell

was the IBM PS/2 Model L40 SX.

Most of IBM's earliest models had only minor success until 1992, when IBM introduced its first line of ThinkPad models.

In 1988, the father of the ThinkPad, Arimasa Naitoh, a Lenovo Fellow located in Japan, received a call about the need to spearhead a new portable computing venture in IBM's research center in Yokohama, Japan. At the time, he was based in White Plains, NY but moved back to Japan to develop what has become the iconic ThinkPad line of portable computers.

I got to watch the development of the ThinkPad from the beginning. Mr Naitoh's leadership, assisted by David Hill, who was instrumental in creating the unique ThinkPad design, made IBM at that time one of the most important portable computer companies in the market.

This chart shows the design history of the Thinkpad and why it is still a big part of Lenovo's success in portable computing:

Under IBM's leadership, the ThinkPad became one of the best-selling laptops in the enterprise. Still, from its introduction to when Lenovo bought IBM's PC business in 2005, they had only sold 25 million ThinkPads.

However, the ThinkPad's growth under Lenovo's leadership has been remarkable. Today, Lenovo has sold over 200 million ThinkPads, and the company continues to innovate around the ThinkPad design to Excellerate it. Although many key players inside Lenovo had a significant impact on ThinkPad's growth, its most considerable thrust and success came under the leadership of Dilip Bhatia, Vice President of Global Marketing, User and Customer Experience, and former Vice President and General Manager of ThinkPad.

A great example of their innovative design and thinking comes with their new line of foldable ThinkPads called the ThinkPad X1 Fold.

Although foldable technology is still in its infancy, Lenovo's willingness to blaze new trails with new and innovative designs has been the trademark of Lenovo's design teams since they first introduced the line of ThinkPads in 1992.

Watching the overall growth of the mobile computing market, especially the birth and evolution of the ThinkPad, has given me a deeper appreciation for the men and women who worked so hard to make portable computing the largest PC market today. And the Lenovo team has played a major role in helping the mobile computing industry grow exponentially over that last few decades.

For those interested in the history of the ThinkPad, I recommend Mr. Naitoh's book on the subject-

How the ThinkPad Changed the World and Is Shaping the Future."

A four-year bachelor’s degree has long been the first rung to climbing America’s corporate ladder.

But the move to prioritize skills over a college education is sweeping through some of America’s largest companies, including Google, EY, Microsoft, and Apple. Strong proponents say the shift helps circumvent a needless barrier to workplace diversity.

“I really do believe an inclusive diverse workforce is better for your company, it’s good for the business,” Ginni Rometty, former IBM CEO, told Fortune Media CEO Alan Murray during a panel last month for Connect, Fortune’s executive education community. “That’s not just altruistic.”

Under Rometty’s leadership in 2016, tech giant IBM coined the term “new collar jobs” in reference to roles that require a specific set of skills rather than a four-year degree. It’s a personal commitment for Rometty, one that hits close to home for the 40-year IBM veteran.

When Rometty was 16, her father left the family, leaving her mother, who’d never worked outside the home, suddenly in the position to provide.

“She had four children and nothing past high school, and she had to get a job to…get us out of this downward spiral,” Rometty recalled to Murray. “What I saw in that was that my mother had aptitude; she wasn’t dumb, she just didn’t have access, and that forever stayed in my mind.”

When Rometty became CEO in 2012 following the Great Recession, the U.S. unemployment rate hovered around 8%. Despite the influx of applicants, she struggled to find employees who were trained in the particular cybersecurity area she was looking for.

“I realized I couldn’t hire them, so I had to start building them,” she said.

In 2011, IBM launched a corporate social responsibility effort called the Pathways in Technology Early College High School (P-TECH) in Brooklyn. It’s since expanded to 11 states in the U.S. and 28 countries.

Through P-TECH, Rometty visited “a very poor high school in a bad neighborhood” that received the company’s support, as well as a community college where IBM was offering help with a technology-based curriculum and internships.

Story continues

“Voilà! These kids could do the work. I didn’t have [applicants with] college degrees, so I learned that propensity to learn is way more important than just having a degree,” Rometty said.

Realizing the students were fully capable of the tasks that IBM needed moved Rometty to return to the drawing board when it came to IBM’s own application process and whom it was reaching. She said that at the time, 95% of job openings at IBM required a four-year degree. As of January 2021, less than half do, and the company is continuously reevaluating its roles.

For the jobs that now no longer require degrees and instead rely on skills and willingness to learn, IBM had always hired Ph.D. holders from the very best Ivy League schools, Rometty told Murray. But data shows that the degree-less hires for the same jobs performed just as well. “They were more loyal, higher retention, and many went on to get college degrees,” she said.

Rometty has since become cochair of OneTen, a civic organization committed to hiring, promoting, and advancing 1 million Black individuals without four-year degrees within the next 10 years.

If college degrees no longer become compulsory for white-collar jobs, many other qualifications—skills that couldn’t be easily taught in a boot camp, apprenticeship program, or in the first month on the job—could die off, too, University of Virginia Darden School of Business professor Sean Martin told Fortune last year.

“The companies themselves miss out on people that research suggests…might be less entitled, more culturally savvy, more desirous of being there,” Martin said. Rather than pedigree, he added, hiring managers should look for motivation.

That’s certainly the case at IBM. Once the company widened its scope, Rometty said, the propensity to learn quickly became more of an important hiring factor than just a degree.

This story was originally featured on Fortune.com

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October 04, 2022, 07:15 PM EDT

“We can‘t be essential unless our partners are skilled in our products and confident in going to their clients with our products and selling them with us and for IBM,” IBM channel chief Kate Woolley said.

IBM has started giving registered members of its PartnerWorld program access to the training, badges and enablement IBM sales employees get along with a new learning hub for accessing materials.

The expansion is part of the Armonk, N.Y.-based tech giant’s investment in its partner program, IBM channel chief Kate Woolley told CRN in an interview.

“We can‘t be essential unless our partners are skilled in our products and confident in going to their clients with our products and selling them with us and for IBM,” said Woolley (pictured), general manager of the IBM ecosystem.

[RELATED: Channel Chief Kate Woolley: ‘No Better Time To Be An IBM Partner’]

Partners now have access to sales and technical badges showing industry expertise, according to a blog post Tuesday. Badges are shareable on LinkedIn and other professional social platforms. IBM sales representatives and partners will receive new content at the same time as it becomes available.

“This is the next step in that journey in terms of making sure that all of our registered partners have access to all of the same training, all of the same enablement materials as IBMers,” Woolley told CRN. “That’s the big message that we want people to hear. And then also in line with continuing to make it easier to do business with IBM, this has all been done through a much improved digital experience in terms of how our partners are able to access and consume.”

Among the materials available to IBM partners are scripts for sales demonstrations, templates for sales presentations and positioning offerings compared to competitors, white papers, analyst reports and solution briefs. Skilling and enablement materials are available through a new learning hub IBM has launched.

“The partners are telling us they want more expertise on their teams in terms of the IBM products that they‘re able to sell and how equipped they are to sell them,” Woolley said. “And as we look at what we’re hearing from clients as well, clients want that. … Our clients are saying, ‘We want more technical expertise. We want more experiential selling. We want IBM’ – and that means the IBM ecosystem as well – ‘to have all of that expertise and to have access to all the right enablement material to be able to engage with us as clients.’”

The company has doubled the number of brand-specialized partner sellers in the ecosystem and increased the number of technical partner sellers by more than 35 percent, according to IBM.

The company’s exact program changes have led to improved deal registration and introduced to partners more than 7,000 potential deals valued at more than $500 million globally, according to IBM. Those numbers are based on IBM sales data from January 2022 to August.

Along with the expanded access to training and enablement resources, Woolley told CRN that another example of aligning the IBM sales force and partners was a single sales kickoff event for employees and partners. A year ago, two separate events were held.

“I want our partners to continue to feel and see this as a big investment in them and representative of how focused we are on the ecosystem and how invested we are,” she said.

October 05, 2022, 07:00 AM EDT

IBM, which three years ago acquired Red Hat, is now moving Red Hat OpenShift Data Foundation and Red Hat Ceph, along with their development teams, into IBM Storage as part of a move to make a bigger play in the software-defined and open-source storage worlds.

IBM Tuesday said it has absorbed storage technology and teams from its Red Hat business to combine them with IBM’s own storage business unit as a way to help clients take advantage of the two without requiring extra integration or having to deal with multiple sales teams.

IBM is integrating Red Hat OpenShift Data Foundation with its IBM Spectrum Fusion and will offer Red Hat Ceph-based storage technologies to its clients in a move to continue Big Blue’s software-defined storage leadership, said Brent Compton, senior director of Data Foundation for Red Hat’s hybrid cloud business.

For IBM, which in mid-2019 acquired Red Hat in a $34-billion deal, the move ensures maximum support for Red Hat OpenShift Data Foundation and Ceph, Compton told CRN.

[Related: 2022 Storage 100: Who’s Got Your Backup?]

“OpenShift Data Foundation and Ceph will become a big part of IBM Storage,” he said. “IBM has been looking for a way to take advantage of Ceph and ODF, and now it can.”

Ceph is an open-source software-defined object storage technology with interfaces for object, block and file storage. Red Hat OpenShift Data Foundation is a software-defined container-native storage that provides cluster data management capabilities as part of the OpenShift container platform.

Scott Baker, chief marketing officer and vice president of IBM hybrid cloud portfolio and product marketing, told CRN the move to combine Red Hat and IBM storage technologies sets the stage for growth in the combined software-defined storage portfolio.

“Customers not only get a choice of where storage runs—at the edge, in the cloud, or on-prem—but will find storage software releases will no longer be tied to the timing of storage hardware releases,” Baker said. “For instance, IBM normally enhances its Spectrum Virtualize or Spectrum Scale with new versions of the IBM FlashSystem. But with software-defined storage, we can drive changes quicker if they’re not tied to hardware releases.”

By bringing Red Hat OpenShift Data Foundation and Ceph into IBM, customers get the opportunity to access unified block, file, and object storage without regard to the genuine underlying hardware, Baker said.

“They can use Ceph to add the right type of storage depending on the protocol they need,” he said. “Ceph and ODF also simplifies how IBM provides data storage and protection. To do all that with IBM’s storage portfolio takes time. With CEF and ODF as part of IBM Storage, this can get done immediately.”

It really is the best of both worlds, as Red Hat customers will also see strong benefits from IBM Storage, Compton said.

“It’s important to note that IBM will continue to offer OpenShift Data Foundation inside the Red Hat OpenShift Platform Plus hybrid cloud platform,” he said. “So if a customer gets pre-integrated OpenShift Data Foundation inside Red Hat OpenShift Platform Plus, it accelerates their time to market. There’s no need to integrate the storage. This will not change.”

Also, Red Hat OpenShift customers have used Ceph to accelerate their time to scale for years, and Red Hat will continue to sell Ceph, Compton said.

“But by moving Ceph to IBM Storage, IBM will accelerate development of the storage-specific features,” he said. “Red Hat is not a storage company. So this will accelerate development of unified capabilities.”

IBM’s storage move makes good on the potential many saw with the company’s acquisition of Red Hat, said John Teltsch, chief revenue officer at Converge Technology Solutions, a Gatineau, Quebec-based solution provider and channel partner to both IBM and Red Hat that ranked No. 36 on CRN’s 2022 Solution Provider 500.

“This is something the channel has been waiting for ever since IBM acquired Red Hat,” Teltsch told CRN. “IBM has been doing a lot around software-defined storage. And when you add in Red Hat, it gives us an integrated solutions play. It lets us build an integrated sales team. We don’t have to first talk about IBM storage capabilities, and then bring in our Red Hat team to talk about Red Hat.”

Converge Technology Partners’ IBM and Red Hat sales teams are currently two separate teams, said Teltsch, who joined the company in March from IBM, where he held numerous sales leadership roles, including two years as Big Blue’s channel chief.

“Once IBM and Red Hat storage are together, it gets more simple to sell,” he said. “And it simplifies our training while IBM will have one integrated set of offerings for its clients. This lets us bring the best of Red Hat open-source capabilities with IBM storage. We’re living in a data-driven world. This move simplifies our go-to-market, as well as simplifies the client experience, client engagement, and client adoption.”

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