“$72B Gone in 48 Hours” - IBM Just Got WRECKED After Earnings Disaster
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Summary
IBM's stock drops 25% in a single day, its worst single-day drop since 1968. After the company pre-announced earnings that fell below Wall Street expectations, analysts had expected IBM to report adjusted earnings per share (EPS) of $3.02 and revenue of $17.86 billion. But the company came up short, posting adjusted EPS of $2.93 and $16.2 billion, and a statement from CEO Arvind Krishna said the company was prepared for a low single-digit decline in its Z17 mainframe business for the quarter.
Transcript
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IBM. We've heard about IBM for how many decades? Many, many years. Back in the days, IBM was
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Facebook. Back in the days, IBM was Google. IBM was Microsoft. IBM was what all these companies
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we talk about today, the first guy was IBM, right? Yesterday, IBM's numbers, you ready? Drops 25%
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in a single day. Okay, 25% in a single day. Let me read these numbers to you, and then Tom,
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I'm going to come to you, and Vinny, please get your reports ready.
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So IBM ended trading Tuesday down more than 25%,
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After the company pre-announced earnings that fell below Wall Street expectations,
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Big Blue attributed the results to customers shifting spending
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Analysts had expected IBM to report adjusted earnings
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per share EPS of $3.02 on revenue of $17.86 billion,
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but the company came up short posting adjusted EPS
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said the company was prepared for a low single-digit decline
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in its Z17 mainframe, business for the quarter,
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but the results were far from worse than projected
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and are at least partially related to the global memory shortage.
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In the last few weeks of June, we saw clients shift their quarterly capital expenditure
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to secure supply-constrained infrastructure ahead of expected price increases, he said.
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while we anticipate some supply chain-related impact in our expectations,
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Since we did not anticipate the magnitude of the CAPEX reprioritization, he added, IDC's Ashia Natkari, who leads the firm's enterprise infrastructure global research group, wrote in a note that Wall Street's reaction to Kirshner's warning was likely stronger than warranted.
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Arvind Kirshner just didn't do a good earnings report.
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He didn't do a good job of putting it together.
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and he go out there. But all these comments is what makes stock go up and down on confidence
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and future guidance. It's confidence and future guidance. So Vinny, I'll be head of General
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Motors. You be an investor. And you tell me if you're going to tell everybody to sell my shares
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or buy my shares. And I'm going to put it and take all of this technical knowledge. I'm going
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to put it in terms you understand. Yeah, we here at General Motors, we find that people aren't
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buying corvettes anymore and we're having a little trouble at the factory we can't get engines
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and um we don't make evs and they seem popular but everything's okay i don't trust you i don't
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exactly so i'm going to take off the techno babble and that's what ibm said we have a product that's
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going away mainframes it's starting to shift memory chips are in shortage we can't get them
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and there's things we don't make you know we got to get to uh servers in the sky ai servers so
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that's what happened but there's something else on the backdrop that's been frustrating what are
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the core that makes a company great it's people it's people we're discovering that just we've
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been sitting here in rhode island for a week and a half and we're you know pat and i've had these
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conversations about people we need great people doing great things and we see things that are
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going on and we see the danger of you know sam altman not having a guy that everybody's rallying
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around your leader from the outside. IBM has been going through a change. Its own people are
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referring to it as Indian business machines rather than international business machines.
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Do you know what the wild shift is? So IBM USA, IBM India, here's a quiz for you. One of them is
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40,000 employees. One of them has 135,000 employees. Which is which? I think the Indian
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fund has 140. I think it's the other way around. India has 135,000 employees. IBM USA only has
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40,000 employees. It's been shifting. It's been shifting on H-1Bs. India, how many job openings,
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U.S. and India? Which number is which? For IBM. For IBM, 376 job openings and 2,840 job openings
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this morning I checked. In India. Which one's India? Which one's USA? 376? 9x. 9x more
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india correct india 2840 job openings for ibm in india 376 available in the usa people are furious
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and there's been a steady flow of people that have been writing on reddit not screaming at
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their employer you you scream at your previous employer on facebook or x or something you can
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expect to get a letter or get sued because especially if you disparage them you do something
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really bad that's dumb well guess what there are ex ibm employees that are on reddit saying
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very gently saying listen guys um i just trained two people in india and then i was laid off a year
0.74
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later and they gave me six months salary but i basically trade trained people that were going
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to replace me and we're hearing about it all across ibm so it's not just ibm here ibm also
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right now has a loyalty and an overall morale problem and they'll probably see this podcast
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pat and publish a bunch of stuff out there but the number of articles and a number of things
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on reddit is overwhelming there's more to it than just this earnings report ibm has got some issues
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inside and a lot of people are saying maybe i don't want to be here and there's only 40 000
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let me ask this question let me ask my dad worked for ibm so here's a question for you they lost
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72 billion dollars a market cap in two days that's a lot 72 billion a market cap ibm lost
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can you pull up their stock they lost 72 billion dollars a market cap in two days that's a lot of
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money here's my question for you when when you when you read uh i've been just in in reading
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mode while we're out here what what is there is that what one day go to five days go to five days
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that's one day go to five days look at that i should start buying look at that yeah can you
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spot when the ceo spoke can you do me a favor go to one year can you go to one year damn okay so
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So it's still higher than what it was five years ago.
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Yeah, so then, Tom, here's my question for you with IBM.
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What is the product they have that beats everybody else in the marketplace?
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It used to be the mainframe computer and high-end consulting
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What is their flagship product that they're the market leader ahead of everybody?
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You're not going to be a $200 billion company without having that.
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It doesn't have a single consumer-style hero product.
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IBM Current Story, IBM Z Mainframes, Red Hat OpenShift, and Watson X.
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I want to know their number one flagship product that brings a big chunk of the revenue.
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Okay, so I just typed in right now, what are IBM's biggest customers?
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One of IBM's biggest financial customers uses IBM mainframes, cloud, AI, security, and consulting.
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Their annual money that they spend just J.P. Morgan Chase with IBM is somewhere around a billion dollars.
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They use the IBM mainframe software consulting customers, $200 million annually.
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Citigroup, few hundred million dollars, Verizon, few hundred million dollars, AT&T, few hundred million dollars, and then you got U.S. federal government uses defense civilian agencies, cloud consulting, cybersecurity, billion over multiple contracts, Deutsche Bank, HSBC, Volkswagen, all of these guys have multi-million dollar contracts.
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Which product brings the biggest percentage of revenue every year to IBM?
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This is the transaction processing single largest software category they have.
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Number two is the Red Hat hybrid cloud brings in roughly $7.3 billion in 2025.
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And then IBM brought Red Hat for about $34 billion, what they bought in 2019,
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betting it would become the bridge between the older enterprises and then consulting,
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It's the mainframe consulting that makes them tons of money.
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Yeah, I remember reading a book called CEO Excellence, and in the book, if you remember this, it tells the story of what Andy Grove did.
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The story with Andy Grove and where he and the former CEO of, what's the company's called?
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They're sitting there having a conversation together.
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and Andy Grove, one of their divisions, I think, went from $198 million, Vinny,
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They went from $198 million to $2 million, one of his divisions, of Intel.
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The president of the company at the time, Andy Grove, asked CEO Gordon Moore,
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if we got kicked out and the board brought in a new CEO,
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He said, they would get us out of the memory chips game.
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Grove stared at him and said, why shouldn't you and I walk out the door, come back, and do it ourselves?
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Intel exited the DRAM memory chips business and staked its future on a new product, a microprocessor.
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In doing so, Intel helped usher in the computer age and had a runoff success that lasted for decades.
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IBM has to kind of ask themselves, what's next?
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What business do they need to get in that they're not?
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because for you to go through a $72 billion in 48 hours,
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and don't get me wrong, I mean, they're going to be fine.
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It's not like tomorrow something's going to happen to them.
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This is more like a two-decade type of a thing that we're talking about.
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is when IBM made a major shift from old mainframes to new mainframes.
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And IBM also created the Wintel standard, Windows and Intel.
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That's exactly the sequence you're talking about.
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And by the way, Microsoft, there were two guys at IBM.
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One of them did not want to give Microsoft the operating system, did not.
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And the other was Don Estridge did not, and there was one guy that did.
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Don Estridge would die in the Delta Airlines Windshear flight that crashed in Dallas in 1985.
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There's a whole high school named for him in Boca Raton.
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And when he died, the other guy was left, and he gave the business to Microsoft.
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If it's not for that Windshear flight in 1985, IBM would have made its own operating system because that kicked off Microsoft.
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And so IBM shifted at that time to the personal computer.
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It ended up being a good move for IBM to shift, but they later got out of the business as it became a commodity.
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Apple was always the artsy and other side of it and education.
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But it showed that IBM and Lewis Gershner wrote a book, Teaching an Elephant to Dance.
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But right now, they're in the middle of a shift.
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They're another shift, and they've got to pick a side, and they've got to move forward.
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I got to be honest with you, when we first started talking about this, I was like, yeah, I don't really, IBM, whatever.
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But I realized something, because I think this is what you were getting at, and it's the whole concept of reinventing yourself.
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Because to me, IBM is like the guy, like Al Bundy, who scored four touchdowns in high school
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and was like the best player in his town and went on to play college.
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But now all these other guys are playing in the NFL and they lapped him.
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I mean, look at all the tech companies, NVIDIA, Apple, Microsoft, Amazon, Tesla.
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All these big tech companies were started decades after IBM.
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So to the average person out there, you might have had success 10 years ago, 20 years ago, and you're still kind of like, that's me.
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I'm that guy. I'm Al Bundy. I scored four touchdowns.
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I think, Pat, what you're kind of getting is you've got to reinvent yourself, and you've got to be known for one thing.
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The fact that we all collectively, using our brain power, didn't know what IBM's flagship product was is a telltale sign.
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I guarantee if I ask the people that are in this space, they would be able to say it within a heartbeat of who it is.
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Typically, when people that are involved in a situation like this, they'll make adjustments.
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smoke cigars, have drinks, et cetera, et cetera.
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I want you to watch what happened here last year at our networking event that we did at
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anybody that's got a general ticket and a platinum ticket you're invited and you'll be networking
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with each other executives our staff's going to give you a tour into our property anybody that
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