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About eighteen months ago I suggested that the successful down sizing and restructuring effected by Mr. Gerstner was fully reflected in the stock price but the correct strategies were not being put in place for the client/server marketplace to keep the price moving upwards. Since then, in a booming technology sector, the IBM stock price has gone up 10-20% while (quality) competitors have seen their stock prices more than double and treble. So as the colleges break up for the Summer, why isn't IBM's stock trading around $250, or even more?
Lets start with mainframe systems. On the upside, there is no licensed software competition and general business growth will drive increases in capacity. On the downside, however, the increasing power of midrange systems means there are few, if any, new mainframe sites being sold and there is a bleeding away at the bottom end into midrange alternatives due to the improved price performance driven by competition between a plethora of UNIX options and the AS/400. Tutor's assessment, "Did as well as could be expected but limited opportunity for dramatic improvement."
On to the midrange. A booming marketplace in which IBM has competitive products for both corporate systems and web servers, with the decision to stand up and compete with DEC fifteen years ago still powering its way into the bottom line. Tutor's assessment, "First class performance, keep it up!"
OEM manufacturing. As these are second level components, they are dependent upon the success of the final product, which is outside IBM's control. They are also probably subject to competitive cost pressures, where $1 of cost translates into a $6-7 product price increase. Tutor's assessment, "Going with the flow."
So on to the great white hope: services. IT services are the coal mines of the 21st Century: labor intensive - and where the amount of money paid to the participants seems to bear little relation to what is charged to the customer. There is little possibility of capital intensive leverage to improve margins and the labour dependency will be a major factor in overall growth. Tutor's assessment, "Showing steady improvement which is expected to continue."
Finally, client/server. This has been taken to heart by customers as the architecture of choice for the implementation of new applications, replacing the previous philosophy of adding them by default to the corporate IT system. It has shown explosive growth over the last decade. Furthermore, there seems to be no evidence of the client/server philosophy running out of steam - on the contrary, it has become the basis upon which corporations are both further developing their IT and exposing themselves to the web. Tutor's assessment, "Other than what has been cribbed from Lotus, there seems to be little understanding of this marketplace or its importance to both ISVs and customers. There is no IBM client/server solution, which leaves a gaping hole in its product line. Failure to focus and to get to grips with this will continue to be a drag on performance."
Principal's summary: "A mediocre performance decorated with a series of excuses explaining away an inadequate result where competitors have been able to show outstanding success. If more attention is not focused to where customers are spending heavily in the client/server/Internet market space, then there is no obvious reason for any dramatic improvement."
And so the stock price keeps on drifting. Bit like a ship, really, with the helmsman not knowing which way to steer.
1. PC OEMs exclusively preload Windows, with few exceptions. This means that all "new PC users" go to Windows automatically, no matter if something else (like OS/2 Warp) is more reliable and user-friendly. By itself, this is not a problem; but, it keeps hardware and software makers from having an economic incentive to develop for superior platforms.
2. Software developers code exclusive Windows-only applications, with few exceptions, meaning that there are fewer choices for non-Windows platforms. The leverage MS used to threaten and browbeat vendors to keep them from writing for OS/2 was and is illegal, particularly for a monopoly. Selling an OS/2 SDK for $2800 and refusing to refund the money after the MS-IBM split, but substituting the Windows SDK, is plainly bait-and-switch.
3. Data file formats are designed by MS to lock people into massive all-or-nothing upgrades, and to prevent them from sharing complex files with their friends, neighbors, and even business associates who use other platforms and applications. While this is not illegal, it can only succeed as a result of the other two sets of crooked acts.
Of these three, the file format problem is the hardest to address, because you don't go to the store to buy a file format, any more than you go to the store to buy a second hand for your clock. It's something that comes built-in. Because it's a self-contained elemental part of the application, it's not something that can easily be regulated.
As a result, the DOJ case is barking up the wrong tree. OS/2 users are not likely to find preloaded OS/2 systems, native OS/2 applications,or open file formats as a result of the DOJ court action.
The case should address the first two problems listed above, and the third one will be more likely to get solved by marketplace action. MS wants to be like the car racer who grabbed the lead lap, then had the race declared over before the other racers could have a chance to compete. Innovation should never be stifled just because one company gains a temporary "edge" and is willing to go to any lengths to keep that edge, including breaking the law.
If you are interested in helping fill this need, please contact me at 408/541-9168, Fax 408/541-9258, or e-mail me directly.
It is my sense that what we are dealing with in this individual and his company and like-minded business people is something far more significant than appears to be widely recognized. I think the situation is not apocalyptic, but it is far more criminal and especially treasonous than it seems to be generally accounted. Your mention of being a Freemason, who gave us our fine system, invites me to mention these insights. I am not a Freemason but many ancestors were and I certainly honor the tradition and its bearers. I am a theologian, and long-time OS/2 user. Anyhow, thanks and best wishes always.
I do not hate Microsoft or Bill Gates. I just wish they would stop trying to 'bully' other operating systems out of the market. Freedom of choice is having choice to chose from. 'Innovation' should not come at the cost of freedom of choice.
While this has been going on, IBM has made three significant announcements with respect to OS/2:
To even the most casual observer, it is clear that the sentiment of the third of these announcements jars with the first two. In fact, if IBM had actively planned to undermine the DOJ as it was about to publish its proposed redress against Microsoft, it could hardly have done a better job with more exquisite timing.
I don't suppose there are many luncheon invitations winging their way from Washington to Armonk at the moment.
No, we stick with OS/2 because we are like people who drive classic automobiles, eat fine food instead of fast food, and who know the difference between good music and great music: "THEY JUST DON'T MAKE 'EM LIKE THAT ANYMORE!"
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