(Excerpts from a message dated 09-24-99, Bryan Schwartz to All)

Hi Bryan--

BS>From an Forbes Mag. article at http://www.wired.com/news entitled
  >"IBM's Giant Gamble" the following examples of IBM continuing to
  >decline in relationship to it's competition: Unix Servers: IBM sales
  >up 3% last year, but
  >              Sun Microsystem's sales up 29%
  >PCs : IBM down 2.4%
  >      Dell Computers up 53%
  >      Hewlett-Packard up 20%
  >Software:  IBM up 6.3%
  >           Microsoft up 23%
  >Things are so bad at IBM that Lou Grestner has decided to sell off
  >IBM's most valued technology to its compeditors. Is this the old
  >"sell the company assets and claim the sale proceeds as revenue"
  >trick that all companys on their last legs use to keep the
  >shareholders happy? Is IBM desperate? Or is just Big Lou desperate?

    Don't believe everything you read!  Especially don't believe much of
anything you read on the World Wide Wait!  If I believed every thing I
read, I would believe the statement (a few weeks ago in the NY Times,
IIRC) that IBM makes more money on every iMAC that Appple sells than
Apple does, because of all of the IBM-produced components (including CPU
and HD) in it :-).

    It would appear that neither Forbes nor you know the difference
between "technology" and "components" :-(.  (Technology is "how to do
it" -  components are physical things manufactured using technology.)
IBM was selling components that it manufactured long before Gerstner
arrived.  Selling components is not at all the same as "selling
technology" and most certainly is not "selling assets."  Among other
useful changes, Gerstner made the sale of components an active profit
center rather than it being a sometimes thing.  The only really new
things about IBM's current very-large component business is its
aggressive pursuit and the amount of money being made from it :-).

    However, IBM has also sold its "technology" (by licensing patents)
to its competitors since the 1956 consent decree, although this has
become profitable only fairly recently due to a (Gerstner initiated)
stricter enforcement policy with regard to infringers.  Until the
patents expire, it is impossible to build an "IBM compatible" PC without
using IBM patents.  Until Gerstner, most "clone" manufacturers were
infringing.

    What you didn't quote (maybe it wasn't in the article) is that IBM's
sales of "big iron" running OS/390 (a _very_ profitable hunk of
hardware) is up; that IBM again is the world's largest producer of hard
disk drives (for all sizes of systems, for all system manufacturers)
while the PC-only disk-drive producers (such as Seagate and Western
Digital) are in financial trouble; and that IBM as a whole is still
growing nicely.  Of course, the fastest-growing operation in IBM is IBM
Global Services, which you didn't mention.  (I suppose this is selling
"IBM technology" to very large end users, although obviously not in the
sense you are worrying about.)

    This shareholder, for one, is still happy.  Being educated as an
engineer and having 50-years experience in the use and design of
computers, I understand what IBM is selling.  (You might, too, if you
read IBM's annual reports and understood the business, instead of paying
attention to technically ignorant financial reporters' nonsense.)  While
I believe that the current market overvalues all "technology" stocks,
particularly those of the money-losing "internet" companies, I don't
think your report will lead me to sell my IBM stock.  Anyway, I couldn't
afford to pay the capital gains taxes :-).

    Regards,

        --Murray

___
 * MR/2 2.25 #120 * Nothing is so uncommon as common sense

--- Maximus/2 2.02