IBM's innovationjam Brainstorming Wingding

Posted by: Steve Hamm on October 09

IBM invited me to participate in its innovationjam this week, so I poked my head in a few times during the five-day experiment in global collaboration. Fascinating. The company built a huge Web 2.0 application in the computing cloud that is part mega-brainstorm session and part marketing event.

IBM invited 100,000 or so employees, clients, partners, and journalists to participate. The theme: Building the enterprise of the future. The theme emerged out of the findings in the company's recent Global CEO Study, which showed that while CEOs of 1100 companies spread around the world believe their companies have to adapt to the changing global economy, but don't know how to do it.

The topic is even more relevant due to the global financial meltdown, and that showed in the registration stats for the jam. More than 700 corporate executives signed up in the first month after registration began, and an additional 300 signed up in just the three days after the stock market meltdown on Sept. 29. In times like these, new ideas can, potentially, provide a lifeline--or at least a bit of hope.

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IBM, a Safe Haven?

Posted by: Steve Hamm on October 09

IBM rushed out its earnings report a week early yesterday, and no wonder: In a world of financial chaos Big Blue's earnings look like the Rock of Gibraltar. The company said its quarterly net income rose 22 percent, to $2.05 a share. That was 3 cents higher than analysts had expected. Net income came in at $2.8 billion, and revenues rose 5 percent to $25.3 billion. It has nearly $10 billion in cash. For more detail, check out the Times story.

IBM's stock had dropped nearly 20% in recent weeks, so the decision to pre-release this piece of good news seemed to be aimed at reversing the momentum and portraying IBM as a safe haven from the financial storm.

The company's shares, which dropped 5 percent yesterday to $90 were up as much as 5% in pre-market trading. Pundits were predicting that IBM's good news might lead a rally on Wall Street today. Bob Djurdjevic, principle analyst at Annex Research, says IBM's stock has been unfairly beaten up by traders, but he's skeptical that the stock will stage a major turnaround against the negative forces in the market. "It remains to be seen if facts trump can trump emotions," he says.

Another important element of IBM's report was that it re-affirmed its strong earnings guidance for the year. That's a bold move in the face of German software giant SAP's announcement on Monday that its sales fell off a cliff in the last two weeks of September as corporate customers curtailed spending on information technology.

Which signal is right? It's not as simple as that. While both companies sell primarily to large corporations, SAP is dependent on large software license sales that are typically wrapped up at the end of the quarter. It's vulnerable to delays in spending. IBM has a much steadier business, since more than half of its revenues come from services.

It's possible that SAP's troubles will be short-lived and, once panic recedes, its customers will make purchase commitments. But even if the chaos ends, there's still a recession on the way, which seems likely to slow revenue growth for both companies.

IBM is a well-run company that's adept at dealing with economic turmoil. It will have to become even more efficient to keep its earnings on track. But it also has the advantage of all of that cash. It's likely to buy back stock aggressively, which will remove shares from the market and boost the earnings-per-share numbers.


TCS Buys Citi's Back Office Operations in India

Posted by: Steve Hamm on October 08

Some analysts are warning that the sky is falling for Indian outsourcing companies with heavy dependency on the West's banking industry as clients, but you wouldn't know it from TCS' bold move today. It's paying $505 million in cash for Citigroup's captive business process outsourcing arm in India. As part of the deal, Citi is guaranteeing TCS $2.5 billion in BPO business over the next 9.5 years. Combine TCS existing IT outsourcing work for Citi with the new contract and the company will be reaping about $450 million a year in revenues from the relationship--making Citi its largest customer. The deal also gives TCS the capability to provide the entire array of transactional business process outsourcing work for the banking industry. "We're making a long term play," I was told today by N. Chandrasekaran, the company's COO. "It will drive a significant amount of work once the crisis period passes." So, rather than fleeing financial services in a panic, TCS is taking on even more business there.

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AMD's Bold Split-Up Move

Posted by: Steve Hamm on October 07

I'm just shaking my head in wonder at the boldness and intelligence of the move announced today by AMD to split itself in two. After soaring high a few years ago, AMD has fallen on hard times. It's really in a capital squeeze. In spite of a strong technology alliance with IBM, it's not able to afford to keep up with Intel in the PC microprocessor business. So it was faced with the prospect of selling off its chip fabs in Dresden, Germany, and continuing as a design-based company. Instead, it's creating two companies, a design company and a manufacturing company--with the majority of the manufacturing company owned by the government of Abu Dhabi. This way, AMD is relieved of the burden of the capital investments that are required to remain a state-of-the- art chip manufacturer but gets to remain intimately involved in the chip-making operations, which is a distinct advantage. It's possible now that AMD will rise again.

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GE's Dedication to Innovation

Posted by: Steve Hamm on October 06

GE has its share of challenges, some of which are laid out in this recent posting by my colleague, Jena McGregor. But I was encouraged a couple of days ago when I interviewed Michael Idelchick, the vice president of advanced technology for GE Global Research. That's the central research and development organization that for decades has pushed the envelope in technology for aviation, medical equipment, and energy generation. I asked if GE is cutting back on R&D as a result of its financial troubles. His answer: "We innovate in all cycles, and we run the company for the long haul. There's no slowing down." That's the answer I wanted to hear. I've seen Intel, Cisco, and IBM invest aggressively during downturns in the past and get rewarded for it when economic growth and demand picked up again.

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The Race for Perfect Book

Innovation is happening everywhere these days. Companies operate without borders to find the best talent and the best ideas wherever they may be. Meanwhile, new business models are arising that just might make it possible to turn large swaths of this contentious world into something approximating a true global village. Tune in for Senior Writer Steve Hamm's dispatches from the intersection of globalization, innovation, and leadership.

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