There’s been plenty of coverage tracking the fact that IBM has hit its all time high stock price, soaring to an intraday peak of 188 today (Wednesday 10/12/11) before settling back to a still impressive 186 and change. While Apple remains the market cap champ – $373B to IBM’s $222B as of this writing – few have focused on the fascinating dynamic that IBM’s stock has actually outperformed Apple’s in 2011. Yup – it’s true. Surprised? I was too.
Check out this Google Finance chart which shows, year-to-date, IBM shares have returned 27% to Apple’s 25%:
As my friend Bob Djurdjevic of Annex Research said in an email to his clients yesterday:
“IBM, which is a part of the Dow, is so far above the 30 industrials average, that it makes the Dow look like a turtle in a hare race. Just as the company did in its initial surge in the 1960s, IBM is now once again pulling the Dow up by its bootstraps.”
Bob is right. Apple and IBM stand alone this year and are outperforming all the major tech companies including hot shots like Google and VMware, cash machines like Oracle, Microsoft and Intel, consistent performers like EMC and SAP; and of course HP which has dogged it in 2011.
Since 1993, IBM has returned 18% annually to shareholders. This is an astounding figure considering the quiet manner in which IBM has performed. The company has been a savvy acquirer of companies and has smartly reinvested capital to generate great returns for shareholders. It has a massive patent portfolio and arguably the best belly-to-belly customer relationships in the business.
So which company outperforms long term, say over the next five years? Would you bet on the 100-year-old IBM or the hip Apple with its sleek products? i.e. the company that challenged IBM’s stogy convention in 1984 with this famous ad:
One is B-2-B the other B-2-C. Slow and steady vs. Facebook, Zynga, Box.net—where would you place your bets? It’s not a no-brainer of a call. Both IBM and Apple have successfully and dramatically transformed themselves. Both companies have fantastic brands. Both are financially very stable. The fact is there’s plenty of room in tech investing for both companies to do well—but on a risk-adjusted basis my money would be with IBM.
There are three fundamental reasons why:
- IBM is “sticky.” Thanks to Lou Gerstner, IBM is a services company first and we have entered the services IT economy. IBM gets the services business model better than any company in big tech. While the firm must transform itself yet again to capitalize on the everything-as-a-service trend, I believe it has the vision and wherewithal to do so (more on that in a minute).
- IBM does complexity better than anyone. Despite all the grand visions of plugging into an IT “utility grid,” backend IT is getting more complex. Yes the user experience is simpler and the plumbing may very well become irrelevant (until it breaks) but the application of IT is becoming mind-bogglingly sophisticated. It’s not the IT itself that matters; it’s what you do with it that counts. IBM excels at “How To ____________” and will print money helping corporations figure out how to generate profits applying technology.
- Data. Lots and lots of data. This trend compounds complexity overall and IBM has been investing heavily in capitalizing on Big Data confusion. IBM’s Smarter Planet initiative is all about data. The company’s vision is far grander and wider in scope than any other. Specifically, IBM’s intent is to transform entire industries through instrumentation, data analysis and decision-making tools—driven primarily by connected sensors.
As my colleague David Floyer wrote recently:
“The growth in data is coming from machines, not humans, and the biggest growth is coming from sensors. Data from video, acoustic, pressure, heat, chemical, proximity, speed and many other sensors is flooding in, in addition to the computer generation of text, tables, and graphics…
The problems of storing this big data tsunami are the normal ones of writing, indexing, provenance, security, protection and retrieval, only on a massive scale. In traditional IT, file systems have been built to handle this. The list of file systems has grown extensively, and traditional Networked files systems (NAS) have improved dramatically with global names spaces and better metadata management. However there is a general computer science consensus that these types of systems cannot scale to meet the performance and availability requirements of petabyte/exabyte with billions/trillions of records, at least not cost effectively.”
Hardening the Cloud– IBM Announces OEM Deal with Nirvanix
This is where cloud comes in. While IBM has often been criticized for its lack of a coherent cloud strategy I’m not so negative on the company’s prospects. Why? Because cloud is services and IBM is the best services company on the planet.
SalesForce.com started the modern cloud movement in 1999 with CRM as a service. But it was Amazon’s AWS (EC2 and S3) announcements in 2006 that really kick started the modern cloud era. Many others including Google, Microsoft, Red Hat, VMware, etc. have followed suit. And recently the open source initiative OpenStack has captured much buzz, despite it not being ready for prime time.
It’s no surprise to me that the big whales, Oracle and IBM are just now getting their act together. Last week at Oracle OpenWorld, we saw Larry Ellison announce the Oracle Public Cloud—which is just that – The All-Oracle cloud. That’s cool. It’s what you’d expect from Oracle – a bunch of Oracle apps that the company will rent you from its own managed cloud, leveraging Java and hammering anyone that’s not ‘open’ like Oracle – how’s that for irony?
IBM in April of this year announced its SmartCloud technology and service portfolio. At the time, Erich Clementi, IBM’s SVP of Global Technology Services said that in the near-to-mid term, IBM would announce capabilities that make the cloud enterprise ready. Like Oracle and the other enterprise whales, IBM is focusing on things like manageability, reliability, auditability, backup and recovery.
Today, IBM unveiled parts of that strategy with several additional SmartCloud announcements. The one that caught my eye was an OEM partnership IBM announced with Nirvanix, covered extensively over at SiliconAngle. Nirvanix is a fast-growing company that has an object storage service, which can be deployed in the cloud or on premise.
As David Floyer also recently wrote:
“The biggest big data systems are now object based rather than file based. One key advantage of object storage is that the data and metadata are stored together, which eliminates many of the locking, metadata traversals, directory crawling, and file allocation table issues of traditional file systems.”
There are four implications of this announcement that are noteworthy, including:
- The announcement underscores that there needs to be an alternative to Amazon in the enterprise. As I wrote in February, Amazon’s service levels are roughly “we’ll do our best but if we don’t please email us.” John Furrier broke a story today about a former Amazon engineer now at Google who wrote: “Bezos most definitely does not give a sh*t about your day.” Well here’s a news flash. Jeff Bezos doesn’t care about enterprise SLAs either.
- The services division of IBM, not the storage group, is OEMing the Nirvanix service. This means a higher probability of success in my view because IBM Global Services will bundle the Nirvanix service as part of a global solution.
- This is a huge endorsement for object storage generally in the enterprise and Nirvanix specifically.
- IBM is putting the competition on notice. It is going to quietly disrupt the on-premise storage businesses of EMC, HP, HDS and others, including IBM itself, with a services-led model. IBM’s services division doesn’t care if it competes with it’s own point product-centric storage group which frankly hasn’t been setting the world on fire anyway.
Competitively, the storage business is changing dramatically. Big data and the cloud are at the heart of these changes and traditional storage architectures and business models are in for a rude awakening. The enterprise storage players are picking their way through the maze. EMC has Atmos, which has been criticized for not meeting its initial scalability goals but nonetheless puts EMC in the game. NetApp acquired Bycast and is a work in process. HP appears to be still working on a game plan for object-based cloud storage. Startups like Cleversafe are doing well but only Nirvanix seems to have a ‘true cloud’ model solution. My main concern about Nirvanix has been lack of presence and mindshare with CIOs – IBM just solved that problem today.
Now admittedly this is just one small piece in IBM’s overall cloud strategy but it underscores how the company operates and why it has done so well for its shareholders. It researches an opportunity extensively, wraps a solution into a services portfolio, performs integration to accelerate value delivery and ultimately buys the asset if it doesn’t own it already.
Will it acquire Nirvanix? Who knows but it’s clear that IBM has the jump on the competition, it’s leveled the playing field and even tipped the scales to its advantage. Smarter planet is the lighthouse, big data is the opportunity and the cloud is the path to get there. Meanwhile, services is the engine at IBM that makes it all move forward.