Chapter 14 Section 7 Post Financial Crisis Era
From 2000 to 2010, IBM's performance is not much worthy of punctuation.Its profit is high, but its development is not very fast, and even when it has a lot of cash income, it does not know how to use the cash for reinvestment, and finally has to return it to shareholders in the form of repurchasing shares.Its stock price has been in a pretty much a straight line over the past 10 years, so its stock options are no longer attractive to new and old employees.Since 2007, IBM has simply issued restricted stock directly to employees.However, its extraordinary survivability in the two economic crises of 2001~2003 and 2007~2009 made the industry amazed.
From 2000 to 2003, due to the bursting of the Internet bubble, it brought short-term and partial turmoil to the world economy. IBM did not catch up with the express train of the Internet, and of course it was less negatively affected by the bubble.These will not be repeated.But the impact of the global financial crisis from 2007 to 2009 on society is ubiquitous.In this financial crisis, many "giant" multinational companies either went bankrupt (General Motors 3, Lehman Brothers, etc.), or were merged (Sun Corporation, Bear Stearns), or collapsed (Yahoo Corporation, Citibank), even very healthy companies, including Microsoft, eBay, etc., have not returned to the situation before the crisis.And IBM not only was not affected too much in the crisis, but also improved its performance rapidly after the crisis.Figure 2-6 is a comparison of IBM's stock price and the S&P 500 Index over the past five years.It can be seen from the figure that even at the end of 2008 when the financial crisis was the worst, IBM's stock price did not fall below the level at the end of 2005 when the economy was very healthy.In March 2009, when the stock market bottomed out, IBM's stock price had already bottomed out. A few days later, its stock price performance increased by about 70% compared with 2005, while the three major indexes of the U.S. stock market in the same period had negative returns.
Comparison of IBM stock price and S&P index (data source: Google Finance)
Why can IBM survive the financial crisis?Why are investors so confident in it?This should be viewed from several perspectives such as its business, business model, management style and globalization.
Almost 100% of IBM's customers are commercial customers, and such businesses are most vulnerable to macroeconomic fluctuations and become very unstable.However, its core business is mainly IT services, which has little to do with finance itself.As we have said before, IBM is not a simple equipment company or software company, but a service company.No matter how the world develops, the demand for IT services industry is always there and rising.Therefore, although there is a financial crisis, various companies and enterprises will quickly reduce or even terminate the purchase of IT products, but as long as these enterprises exist, they will need IT services for a day.With this stable source of income, IBM's revenue was not affected much in the worst quarter of the financial crisis.On the contrary, those IT companies that mainly sell equipment, components and software, such as Sun and Intel, will see a sharp drop in revenue.Intel has a big business. Although its turnover is 1/4 lower than that of the year before the financial crisis, it can still be maintained; and Sun, which was already precarious, had to be merged after several consecutive quarters of losses. up.This shows the smoothness of IBM's business and business model.
As a rare century-old store in the IT field, although IBM's middle management is bloated, its top management is still very experienced. IBM has continuously eliminated businesses with very low gross margins in the past, which has kept the company's gross profit margin at a very high level. IBM has nearly 300,000 employees worldwide, and wages and other labor costs account for a major part of its costs.In a good macroeconomic period, it doesn't care much about the cost of labor, which gives IBM's middle-level leaders a chance to expand indiscriminately.However, IBM's top management is very clear that even if they cut 20% of their staff, their business will not have any fundamental impact.Ever since Gerstner came to power, IBM began laying off employees in disguise every time there was an economic crisis.The first thing they let go is the contract staff (rather than permanent staff) in the US.This time, they went one step further than in the Gerstner era, permanently moving a lot of work to India, where the cost can be half that of the US.As a multinational company with business all over the world, IBM's services are also globalized. There is no essential difference between serving the world from the United States and serving the world from India. In order to appear more humane to American employees, IBM will give the corresponding person a chance to "relocate to India" when they lose a job in the United States, but require them to receive local wages after arriving in India.Of course, except for the original employees from India, other people would not consider this "good choice" at all.
The third and perhaps most important reason for IBM's stable performance comes from globalization.We will introduce more about globalization later.In fact, not only IBM, but the real economy of the United States has not been hit too much in this financial crisis. The reason is that the main leading companies in various industries in the United States are multinational companies, and half or more of their income comes from overseas.Let's take a look at the proportion of overseas revenue of the top 10 IT companies in the United States to their total revenue:
The geographical market division of the companies marked with * above is based on the Americas as a whole, so "overseas" revenue is actually non-America revenue.Specifically, IBM's revenue in the United States in 2009 was 4% lower than that in 2007, but its revenue in Latin America and other countries has increased significantly, resulting in the maintenance of the revenue ratio of the entire Americas.
From the table, we can easily see that the original income of these companies mainly comes from overseas, and this proportion is still rising after the financial crisis.Therefore, although the center of the financial crisis is the United States, the really good companies in the United States have a very strong ability to resist the local economic recession.Specifically, IBM's exports became strong due to the rapid depreciation of the dollar at the beginning of the financial crisis.At the same time, its overseas business is conducted in local currency, and its revenue in its financial report is settled in US dollars. Therefore, when the currencies of other countries appreciate relatively, IBM's financial report looks very beautiful.
Based on the above reasons, Wall Street has relative confidence in IBM even when the financial crisis is the most dangerous.Conservatism and prudence are crucial to this century-old store.
IBM has survived and developed in the previous technological revolutions in the past century, and has its own way of survival.It continues to develop and develop technology to lead and follow the technological trend; in terms of operation, it sticks to its core market of the government, military, enterprises and institutions, and is very cautious about entering new markets.So far, it has successfully completed two major transformations, from machinery manufacturing to computer manufacturing, and from computer manufacturing to service.It missed the wave of technology centered on microcomputers and the Internet, which is largely determined by its genes, but it has weathered successive economic crises smoothly.Today, it remains one of the most populous, turnover and profitable technology companies in the world.In the foreseeable future, it will develop smoothly with the wave of technological development until the next big technological revolution.
Comparison of IBM stock price and S&P index (data source: Google Finance)
Why can IBM survive the financial crisis?Why are investors so confident in it?This should be viewed from several perspectives such as its business, business model, management style and globalization.
Almost 100% of IBM's customers are commercial customers, and such businesses are most vulnerable to macroeconomic fluctuations and become very unstable.However, its core business is mainly IT services, which has little to do with finance itself.As we have said before, IBM is not a simple equipment company or software company, but a service company.No matter how the world develops, the demand for IT services industry is always there and rising.Therefore, although there is a financial crisis, various companies and enterprises will quickly reduce or even terminate the purchase of IT products, but as long as these enterprises exist, they will need IT services for a day.With this stable source of income, IBM's revenue was not affected much in the worst quarter of the financial crisis.On the contrary, those IT companies that mainly sell equipment, components and software, such as Sun and Intel, will see a sharp drop in revenue.Intel has a big business. Although its turnover is 1/4 lower than that of the year before the financial crisis, it can still be maintained; and Sun, which was already precarious, had to be merged after several consecutive quarters of losses. up.This shows the smoothness of IBM's business and business model.
As a rare century-old store in the IT field, although IBM's middle management is bloated, its top management is still very experienced. IBM has continuously eliminated businesses with very low gross margins in the past, which has kept the company's gross profit margin at a very high level. IBM has nearly 300,000 employees worldwide, and wages and other labor costs account for a major part of its costs.In a good macroeconomic period, it doesn't care much about the cost of labor, which gives IBM's middle-level leaders a chance to expand indiscriminately.However, IBM's top management is very clear that even if they cut 20% of their staff, their business will not have any fundamental impact.Ever since Gerstner came to power, IBM began laying off employees in disguise every time there was an economic crisis.The first thing they let go is the contract staff (rather than permanent staff) in the US.This time, they went one step further than in the Gerstner era, permanently moving a lot of work to India, where the cost can be half that of the US.As a multinational company with business all over the world, IBM's services are also globalized. There is no essential difference between serving the world from the United States and serving the world from India. In order to appear more humane to American employees, IBM will give the corresponding person a chance to "relocate to India" when they lose a job in the United States, but require them to receive local wages after arriving in India.Of course, except for the original employees from India, other people would not consider this "good choice" at all.
The third and perhaps most important reason for IBM's stable performance comes from globalization.We will introduce more about globalization later.In fact, not only IBM, but the real economy of the United States has not been hit too much in this financial crisis. The reason is that the main leading companies in various industries in the United States are multinational companies, and half or more of their income comes from overseas.Let's take a look at the proportion of overseas revenue of the top 10 IT companies in the United States to their total revenue:
The geographical market division of the companies marked with * above is based on the Americas as a whole, so "overseas" revenue is actually non-America revenue.Specifically, IBM's revenue in the United States in 2009 was 4% lower than that in 2007, but its revenue in Latin America and other countries has increased significantly, resulting in the maintenance of the revenue ratio of the entire Americas.
From the table, we can easily see that the original income of these companies mainly comes from overseas, and this proportion is still rising after the financial crisis.Therefore, although the center of the financial crisis is the United States, the really good companies in the United States have a very strong ability to resist the local economic recession.Specifically, IBM's exports became strong due to the rapid depreciation of the dollar at the beginning of the financial crisis.At the same time, its overseas business is conducted in local currency, and its revenue in its financial report is settled in US dollars. Therefore, when the currencies of other countries appreciate relatively, IBM's financial report looks very beautiful.
Based on the above reasons, Wall Street has relative confidence in IBM even when the financial crisis is the most dangerous.Conservatism and prudence are crucial to this century-old store.
IBM has survived and developed in the previous technological revolutions in the past century, and has its own way of survival.It continues to develop and develop technology to lead and follow the technological trend; in terms of operation, it sticks to its core market of the government, military, enterprises and institutions, and is very cautious about entering new markets.So far, it has successfully completed two major transformations, from machinery manufacturing to computer manufacturing, and from computer manufacturing to service.It missed the wave of technology centered on microcomputers and the Internet, which is largely determined by its genes, but it has weathered successive economic crises smoothly.Today, it remains one of the most populous, turnover and profitable technology companies in the world.In the foreseeable future, it will develop smoothly with the wave of technological development until the next big technological revolution.