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0 pointsdalke12y ago0 comments

Could you define "dead weight" in this context?

Is it that STG and GTS were a net loss to the company, or is it that those groups weren't profitable enough to make the alleged $20/share goal?

If IBM has decided to leave the hardware business as a long term goal, then is it fair to call the hardware people a "dead weight" if that part of the organization is still profitable? The term seems to imply that the people themselves are at fault.

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iends12y ago

I'm not sure what's alleged about the $20/share goal.

I do not know the income, off the top of my head, for STG and GTS, it's they made a profit, but revenue growth was negative. When you're trying to allocate capital for a business would you rather put your capital towards products with a 5% margin (hardware) or a 85% one (software)?

IBM has been pretty clear that they want to jettison the lower margin businesses in favor of higher margin ones. Maybe dead weight isn't the right term for these employees, but from a business perspective these low margin products are more or less dead weight.

dalkeOP12y ago

I know only what I read in the linked-to article. I don't how important the $20 earnings per share is to IBM, that they might let off profitable groups solely to make that goal. Hence "alleged."

But "insufficiently profitable" and "dead weight" are not synonymous, just like "maximizing profit" and "greedy bastard" are not synonymous. The first of each pair are economics terms, the second are social terms.

To turn your question around, would you rather put your capital towards products with 85% margin or 75%? Does your choice of one make the other by definition a dead weight?

Spooky2312y ago

The margin question is a good one, and you have to ask it in context of IBM. Nobody wakes up and says "Hey, let's go buy SVC for storage virtualization!". You go to buy IBM storage (lower margin) and layer on SVC and the other management software.

Think of a fast food scenario. The marginal cost of cheese on a hamburger is like 95% profit for a restaurant. That doesn't mean that you stop selling hamburgers for $1 and only sell slices of cheese for $0.25.

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