IBM will go the way of GE: a former industrial powerhouse ruined by the relentless drive to report increasing revenues demanded by Wall Street’s relentless quarterly reporting cycle.
One of GE’s sins was to “disturb” exiting contracts in order to sell a new one and report the new revenue. The problem was that the new products were discounted heavily in order to book the new deal. But the numbers looked good for the Street (but don’t look too close).
Same thing at IBM.
The drive to “hit the numbers” along with the threat of losing one’s job if management doesn’t is responsible for this. Moreover, if one figures that they not going to be around for that long anyway they might as well pull out the stops to do what they can to report any kind of new revenue. Senior management encourages this because it flows through to their executive incentives e.g. options. The underlying mentality is to grab what you can now.
Regarding costs, yes, they have to be minimized. Lopping heads is a no-brainer, as is slashing R&D, which represents a risky bet on some uncertain future. The phrase “eating the seed corn” comes to mind.
As for the share price, if the revenue does fall short, there are always share buybacks to keep the price up. One has to keep the shareholders and the Street happy. But they’ll eventually figure you out.
So yes, it’s all about the finance and the profit. Just as it was at GE.
Bumped from @phl+1mYkGr8i.