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- October 9, 2012
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On January 22, 1984, Apple ran a television commercial introducing the Macintosh computer during the broadcast of Super Bowl XVIII. Inspired by George Orwell’s book 1984, a woman hurls a sledgehammer through a giant screen – in a fiery explosion – where a “Big Brother” figure is speaking to a bunch of nameless, unemotional faces.
The takeaway was, of course, that IBM (NYSE: IBM) was taking over the world. Buying a Mac would show off your individuality and support of independent thought.
Fact is, to this day, IBM remains firmly entrenched as the leader in enterprise technology. Its full-year sales – in the neighborhood of $100 billion – trumps the GDP of roughly 120 countries of the world.
It’s like a virtual Wal-Mart of information technology. In other words, when looking to fill technology needs, a Chief Information Officer is almost guaranteed to do business with IBM in some capacity.
“No one ever got fired for going with IBM,” goes the old corporate adage.
But that doesn’t mean an up-and-coming innovator can’t grab a nice chunk of market share. And earn us a fat profit along the way…
This Thoroughbred is Fast…
Most of the major vendors in this space – Oracle (Nasdaq: ORCL), EMC (NYSE: EMC), Hewlett-Packard (NYSE: HPQ), Dell (Nasdaq: DELL) – continue to take steps toward looking more and more like IBM. I realize that’s a bit counterintuitive. I mean, most “innovators” innovate. So why in this case is the course of action to mimic the leader?
Simply put, the strategy works. For starters, IBM has the broadest product portfolio, which enables its sales force to sell complete solutions. It’s akin to firing a shotgun versus a competitor’s rifle.
An IBM sales representative can combine many products and address a slew of customers’ needs with a single deal. Niche competitors must identify a sole need and provide a single solution, repeatedly. A shotgun always has a better chance of hitting the target.
More favorably still, with such clout, the IBM sales team bypasses mid-level managers, going straight to the top – the CEO or some other person with the name “Chief” in their title – to make the sale.
Big Blue is the standard-bearer. Period.
That being said, as an analyst embedded in the industry for 14 years, I can tell you that a handful of companies are beginning to close the gap in the race to rival IBM. I already mentioned the major horses in the field.
To the winner will go the spoils – incredible share price appreciation in the months ahead. So envy the investor who knows how to handicap this race. He’ll be the one cashing the winning ticket, as the others rip up theirs and order another beer. Who would you rather be?
Get Your Bets Down…
Oracle, Cisco and EMC have the talent, the expertise, and the willingness to make the needed changes to make a run at the finish. Hewlett-Packard is coming off significant changes and is well positioned, but likely lacks the resources to make a strong closing run. Dell is simply in a race above its class.
Leading Contenders (…And the Morning Odds)
Oracle (3:1) – With its acquisition of Sun Microsystems now complete, Oracle is a new player in the race to rival IBM. The company and its famous jockey Larry Ellison, have shown a willingness to make major splashes through large acquisitions. While new to this class of race, make no mistake, this horse knows how to win.
Bet on Oracle because it has the best chance of transforming itself into a bigger, broader entity.
EMC (5:1) – EMC is missing too much to be a serious contender. It lacks the services division and the systems divisions to go toe to toe with IBM.
EMC’s best strategy would be to cozy up nicely with Cisco. The companies enjoy a good relationship, but I would wait to see what happens before placing a big bet on EMC in this race.
Hewlett-Packard (10:1) – Hewlett-Packard already resembles IBM. That’s why they won’t surprise anyone and are unlikely to win at the end. A good company, yes. A good stock – sometimes. But the winner in this race – unlikely. Throw in a couple of years of management upheaval, and it would be amazing if this horse still knows what it was bred for.
Dell (50:1) – Dell is probably in the worst shape on this list. It may actually try to make a run at this strategy (the acquisition of Perot Systems a couple of years ago is an example) but it’s in no position to make a serious run. Dell would be better off wearing yellow – and staying afraid of the big boys. But it may not, and it may try to make a run. And if it does, it will not succeed. This company is beginning to understand the value of having a software portfolio, but this is potentially too little too late, at least for the foreseeable future.
IBM (even money, 1:1) – IBM shares have recently hit all-time highs. The strategy works. Even with a new CEO the firm is unlikely to be de-railed. In the race to “look like” IBM, is there anybody in a better position than Big Blue itself? Let the others try – they may have some success. But it will be IBM standing alongside any of the winners listed above.
– Gary SpivakSource: Investment U
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