With the steadily worsening economic climate taking a toll on most large technology companies, IBM is a rare exception to the rule. Just yesterday the industry stalwart announced an impressive (especially under the circumstances) 12% rise in net Q4 profits, the bulk of which can be attributed to CEO Sam Palmisano's strategic transition to cloud computing and software-as-a-service (SaaS), both of which were initiated years before these sectors grew hot.
The New York Times attributes this to IBM's "global reach and its mix of businesses", reporting that "about 40 percent of its revenue and 60 percent of its profit come from products and services sold on a subscription basis as licenses or contracts that are renewed every year or so." This means that IBM can charge higher prices for its work while former head-to-head competitors like Intel, Sun and Seagate are caught up in hardware price wars that drive down prices - no surprise as chips and components are commoditized.
This belief is further reinforced by IBM's intelligent use of web communications (blogs & easy to follow videos, an expertise that Google shares), its vision of planetary technology and information development (see the video below)...
The truly worrying part is that this hiccup is not related to high oil prices, which have fallen off considerably in the past month, but instead the ongoing home mortgage collapse which some predict will cost us in the $1,000,000,000,000 (IMF estimate) to $2,000,000,000,000 (Goldman Sachs) range. This confirms that we are deeply vulnerable in at least two separate yet critical areas, making any subsequent surprises all the more worrisome for fear of a chain reaction or even a fourth turning.
The Trillion Dollar Question: Just how bad is this going to get?
According to the big-wigs, the situation is ugly but not entirely hopeless:
Presidential candidate Barack Obama says, “I don’t think that we’re … necessarily going in the direction of the Depression. ... There are some similarities, though, to what happened back in the late 20s and early 30s and what’s been happening now, and the biggest similarity is how we’ve been dealing with Wall Street and what’s happening in the financial markets.” – Reuters
U.S. Treasury Secretary Henry Paulson acknowledges that we’re going through a difficult time and that housing is “at the root” of the troubles but that we’ll get past those “in months as opposed to years.” – Bloomberg
Former Fed Chairman Alan Greenspan, seems to concur with the notion of a period of deep shift:
“This is a once in a half century, probably once in a century type of event. We shouldn’t try to protect every single institution. The ordinary cost of financial change has winners and losers.” – Bloomberg
“As GM goes, so goes America.” – Let’s all hope that famous maxim doesn’t apply now.
Yesterday General Motors stock closed below $6 for the first time since the 1950s. Then last night, the financial woes worsened as most foreign stock markets plunged between 4% and 9%. Now this morning we’re all left wondering, “Just how bad will this get? Are we nearing the worst of this crisis?”
Here’s a CNN summary of the action:
Some economists are optimistic that we’re nearing the bottom, but many others are bracing for another Great Depression.