This blog is the first in a new series on Institutionalinvestor.com entitled Global Market Thought Leaders, a platform that provides analysis, commentary, and insight into the global markets and economy from the researchers and risk takers at premier financial institutions. Our first contributor in this new section of Institutionalinvestor.com is AllianceBernstein, who will be providing analysis and insight into equities.
Could those guys at stodgy IBM, which celebrated its100th birthday last week, really be almost as smart as the grandkids over at LinkedIn or Groupon? The appeal of the new and trendy can be overpowering in the technology sector, but red-hot IPOs may not be the only — or the smartest — way to play the cutting edge.
Back before there was such a thing as cloud computing or social networking, Big Blue took a look at its future as a maker of PCs and hardware for corporate data centers — and fled in the other direction.
Unafraid of jettisoning a household-name operation, CEO Sam Palmisano sold IBM’s PC business to Lenovo in 2004. IBM focused on the consulting and data services businesses it had started in the 1990s and beefed up with the 2002 acquisition of PricewaterhouseCoopers’ consulting arm.
Its old-guard rivals Hewlett-Packard (HP) and Dell moved more slowly, with HP buying the undistinguished Electronic Data Systems in 2008, and Dell picking up the even more undistinguished Perot Systems the following year. HP now has two giant segments, PCs and services, which account for 60 percent of its revenue, and they are having trouble growing. Dell’s stock has been lagging IBM and HP for years.
It has turned out that in the corporate market for services and consulting, a rich and satisfying user experience is just as vital as it is in the consumer sphere.
Corporate clients will pay for great execution. They don’t just want machines and maintenance; they want to use technology in innovative ways to transform how they do business. At heart, this is no different from consumers’ use of new technologies to reshape the way they connect with friends, colleagues and employers — whether that’s on a piece of hardware like an Apple iPhone or a social-networking site like LinkedIn.
Data service providers that get this, like IBM and Accenture, are seeing growth in consulting and are gaining ground over rivals that have moved more slowly. I don’t think that’s likely to change anytime soon. Moving up the food chain is difficult, particularly as trends like cloud computing and mobile devices fundamentally alter the way companies do business.
In the meantime, the old PC market is still slowing. Sales growth related to PC upgrades peaked back in 1995 with Windows/Intel 386. Subsequent upgrades have led to ever smaller bursts of sales. In recent years, there has been nothing new, and that includes Microsoft’s Windows 7. If you want to enjoy hardware innovation, there’s another grown-up company you can look to: Apple.
Chris Toub is the Director of Equities for AllianceBernstein
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio management teams.
