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NSA Revelations Kill IBM Hardware Sales in China
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
The first shot was fired on Monday. Teradata, which sells analytics tools for Big Data, warned that quarterly revenues plunged 21% in Asia and 19% in the Middle East and Africa. Wednesday evening, it was IBM’s turn to confess that its hardware sales in China had simply collapsed. Every word was colored by Edward Snowden’s revelations about the NSA’s hand-in-glove collaboration with American tech companies, from startups to mastodons like IBM.
But the fiasco was tucked away under the lesser debacle of IBM’s overall revenues, which fell 4.1% from prior year, the sixth straight quarter of declines in a row. Software revenue inched up 1%, service revenue skidded 3%. At the hardware unit, Systems and Technology, revenue plunged 17%. Within that, sales of UNIX and Linux Power System servers plummeted a dizzying 38%. Governmental and corporate IT departments had just about stopped buying these machines.
IBM quickly pointed out that there were some pockets of growth in its lineup: business analytics sales rose 8%, Smarter Planet 20%, and Cloud, that new Nirvana for tech, jumped 70%. But in the overall scheme of things, they didn’t amount to enough to make a big difference.
All regions were crummy. Revenues in Europe/Middle East/Africa ticked up 1%. In the Americas, they ticked down 1% – “The improvement came equally from the US and Canada and once again, we had strong performance in Latin America,” is how CFO Mark Loughridge spun the situation during the earnings call because it was less bad than last quarter.
But there was nothing to spin in Asia-Pacific, where revenues plunged 15%. Revenues in IBM’s “growth markets” dropped 9%. They include the BRIC countries – Brazil, Russia, India, and China – where revenues sagged 15%. In China, which accounts for 5% of IBM’s total revenues, sales dropped 22%, with hardware sales, nearly half of IBM’s business there, falling off a cliff: down 40%.
Mr. Loughridge, in his prepared statement, tried to come up with a logical-sounding panic-free explanation:
We were impacted by the process surrounding China’s development of a broad based economic reform plan, which will be available mid-November. In the meantime, demand from state-owned enterprises and the public sector has slowed significantly as decision-making and procurement cycles lengthened.
So, would that unprecedented collapse of demand for hardware in China end after mid-November? Nope. These “changes will take time to implement,” he warned. In fact, he did not expect demand to pick up “until after the first quarter of next year.” Not anytime soon.
No one believed that rigmarole.
When an analyst needled him, Mr. Loughridge began to deviate from the scrip: “The hardware business across those elements of the product line accepting zSeries performance (IBM mainframe computers), it was down substantially. We were talking 40%, 50%. Enormous reductions on a year-to-year basis in a geography where we intended to see growth rates.”
They’d intended to see double digit growth rates. He referred to last year, when sales in China were up 19%, “driven heavily by really strong performance in hardware base,” he said. But suddenly, hardware sales collapsed “40%, 50%” from last year. IBM didn’t even have time to come up with a credible excuse. He was struggling to make sense of it, grasping at flimsy straws and the same economic reform plan theory that no had believed earlier, but this time, it got all tangled up:
And you got to look at that and say, what significantly accounts for that. And I would say, quite honestly, if you look at the elements in China and we have worked with the team in China that simply has been a substantial impact as the process surrounding China’s development of broad based economic reform plan takes shape. And that is going to be announced and available, we think in November and probably it will take some time to implement. So I think we are looking at a couple of quarters, but once that economic plan is announced, it adds clarity to market, we should see, I think and fairly within our team, a recovery in the demand pattern for state-owned enterprise public sector.
The explanation is more obvious. In mid-August, an anonymous source told the Shanghai Securities News, a branch of the state-owned Xinhua News Agency, which reports directly to the Propaganda and Public Information Departments of the Communist Party, that IBM, along with Oracle and EMC, have become targets of the Ministry of Public Security and the cabinet-level Development Research Centre due to the Snowden revelations.
“At present, thanks to their technological superiority, many of our core information technology systems are basically dominated by foreign hardware and software firms, but the Prism scandal implies security problems,” the source said, according to Reuters. So the government would launch an investigation into these security problems, the source said.
Absolute stonewalling ensued. IBM told Reuters that it was unable to comment. Oracle and EMC weren’t available for comment. The Ministry of Public Security refused to comment. The Development Research Centre knew nothing of any such investigation. The Ministry of Industry and Information Technology “could not confirm anything because of the matter’s sensitivity.”
I’d warned about its impact at the time [read.... US Tech Companies Raked Over The Coals In China]. Snowden’s revelations started hitting in May. Not much later, the Chinese security apparatus must have alerted IT buyers in government agencies, state-owned enterprises, and major independent corporations to turn off the order pipeline for sensitive products until this is sorted out. As Mr. Loughridge’s efforts have shown, it’s hard to explain any other way that hardware sales suddenly collapsed by “40%, 50%” in China, where they’d boomed until then.
This is the first quantitative indication of the price Corporate America has to pay for gorging at the big trough of the US Intelligence Community, and particularly the NSA with its endlessly ballooning budget. For once, there is a price to be paid, if only temporarily, for helping build a perfect, seamless, borderless surveillance society. The companies will deny it. At the same time, they’ll be looking for solutions. China, Russia, and Brazil are too important to just get kicked out of – and other countries might follow suit.
In September, IBM announced that it would throw another billion at Linux, the open-source operating system, to run its Power System servers – the same that China had stopped buying. It seems IBM was trying to make hay of the NSA revelations that had tangled up American operating system makers. Linux, free of NSA influence, would be a huge competitive advantage for IBM. Or so it would seem. Read.... The Other Reason Why IBM Throws A Billion At Linux (With NSA- Designed Backdoor)
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Why would anybody buy anything made here
The main exports of the USSA are implements of death and destruction both bombs and financial fraud
Not to mention your "entertainment" industry.......exportiong murder, killing, drugs, rapes, guns, death death death......as Entertainment............Amercia is a very sick and perverted nation....... will be good for the world when it, in its current form, finally dies....
careful what you wish for, homeslice.
Why the decline?
A Law of unintended consequences
B Arrogant, static view of the world
C Incomprehension of the fact that there some people left in .gov with a conscience
D All of the above
I disagree with A. If you are fucking over your customers you will get found out. They will go elsewhere. It's a damned near certainty.
That goes for your workforce too.
The IBM management so badly wanted the D.
...and now they got it from China.
Sure, China has a broad based economic reform plan...and it does not include IBM, or Terradata, or Apple, or...
It's called Resolution 10-289
Apple is next.
Micro$oft is next.
The Internet is next.
You fucks at Goog read that right.
Speaking of tech & G@@Gle. I've been bombarded with calls today from educational institutions. I finally picked up the phone & spoke with a guy telling him they'd have to scam someone else that my son was deceased. He asked 3 times for my address & I wouldn't give it to him, but he had it. He then proceeded to inform me that I'd done a search for 2 of their particular programs. Which I had not. I stopped using goog sometime back & use adblock, ghostery etc. The only thing of comfort was they didn't have my name.
Financial desperation all around us...
And so the feeling grows.
Long analog. Short digital.
i just dusted off my Commodore 64...
Thought those were digital
Meh, the NSA spooks will die from boredom, waiting for the C64 to do anything (1MHz clock I seem to recall!)
Oracle <@> movin' up on the backstretch.
IBM's complete and utter infestation with Indian nationals might also be part of the problem. Indo-China relations haven't always been the best and wars have been part of the history between the two countries. Since IBM is essentially a firm comprised of Indian nationals, why would China want to support that?
the "I" in IBM stands for "international", IIRC.
IBM...it's now SpyBM.
our government...just BM.
IBM= "Indians, Badly Managed"
Government=BM= "Badly Managed"
Used to. Now the "I" is for India.
Funny, an American client started to call them Indian Business Machines.
Study IBM's policy of 'Landed Resources' if you want to get to the root of the problem.
I say turn them all into liquid carbon.
http://gizmodo.com/5835730/this-machine-liquifies-human-bodies
Extract the carbon. Then bind hydrogen to the free carbon elements.
http://en.wikipedia.org/wiki/Hydrocarbon
Liquid Indians == The basis for Crude Oil.
Genocide surely, but those who practice the policy of overpopulation and resource over consumption have got to expect the pendulum to swing against their natural perversions.
"......and resource over consumption "
Well, Amercia is really fucked then, you fat asses consume more of everything than anyone else........look in the mirror latley?
I'm German and I live in the Black Forest in a tent.
We understand. German National-Socialists have a strong green streak in them.
I bet your rent is cheaper than mine...but doesn't it get cold in the Black Forest during winter?
Oracle, Cisco, IBM and so on....may all have a very tough time in Asia now and possible the EU ... Revenues are beginning to reflect this.
chicken meet roost
You should see their consulting earnings.
Shit meet fan!
Black swan, let me introduce you to IBM.
The industrial revolution came to an end, now the technology revolution is at it's end.
Brace yourselves for impact.
Sorry, Luddite, but the technology revolution, IBM notwithstanding, is just getting warmed up.
Brace yourself for impact:
http://en.wikipedia.org/wiki/Accelerating_change
I'm sure you're eagerly anticipating a Fagbook button next to your onstar as the crescendo.
Those with boots on the ground will tell you. It's over.
Over.
Define "over."
If you mean the nation-state paradigm, I'm with you.
If you mean back to Medieval times (James Howard Kunstler), I'm also with you, with the understanding that humanity will experience a paradigmatic collapse and at least an order of magnitude decrease in population amid a corresponding reset of civilization.
If you mean that humanity has no possibility of a paradigm shift from statism to freedom — with technology playing an integral role in this regard (our present conversation being a case in point) — then I'm not with you and, on the contrary, would have to relagate you to the category, not just of Luddie but of nihilist.
Please explain yourself.
One hundred men.:
http://www.youtube.com/watch?v=m5WJJVSE_BE
Makes a bet that there are one are at least one hundred men here on ZH that can change the world and stop this insanity that continues day after day.
What would you propose with your 100? Potshots at WH snipers? Supper in jail. Potshots at anything? Supper in jail. 100 thought leaders? Us injuns is already vastly outnumbered by the chiefs; thoughts are cheap. 100 bloggers? Got that!
So what? What could we DO? Vote? Voting has become an exercise in self deception and widespread pacification. It only works now for the mob rule majority firmly entrenched between the letter and spirit of the law and guarded by the foxes in the Propaganda Ministry.
Going Galt has some benefits but has also the drawback of simply living IN the system while waiting for the system to collapse. Unless you are financially independent and have land enough to maintain a high degree of self sustainability, you still remain very dependent on the systems around you, be they good or evil as social entropy accelerates. The 100 could band together in some financially independent enclave but that won't change the trajectory of our nation.
So what do you do with 100? I, like everyone else on this and every like-minded site, have scratched my head and tried to think of what I can do (pitifully little) or what a group could do. The problems with a group become self evident as we think about group dynamics, from inception, info sharing, training, etc.
I have come to believe the system is teetering on its own and Obamacare just may be the Unintended Consequence that takes down enough of the very critical healthcare system to galvanize and focus the minds of millions in a way that and outside effort could only dream of.
Our economy and worldwide economic activity are slowing for various well-documented reasons even as the printing of fiat currencies worldwide accelerates. The Keynesian Endpoint approaches. The policies of the current administration are doing nothing to improve our economy and jobs availability, in fact just the opposite. We may need only to wait until we see the whites of their eyes.
Multiply by 3 and just say "THIS IS SPARTA!"
I am SPARTACUS!
Ooops, wrong movie. Sorry.
Do better than make a bet: start leading the change. No more crony socialism!
Zerohedge members told us that NSA agents were present during every chip design and added code and hardware to it. How could we sanely expect that foreign governments are going to use market forces to make decisions and implement their most secure networks for banking, government and businesses.
Every Country in the world capable of doing it must be working in CHIP design and manufacturing and code design, not doing it they now know it implies continued dependency of Uncle Sam.
The cat has been out of the bag f0r quite some time. The cost of this will be huge to America. And there is no coming back.
You're close, but still off a bit. The first group out there that does 100% open-source chip design, allowing for easy fabrication while ignoring all existing IP to allow for easy chip-swapping... they'll make an absolutely stupid amount of money as long as they are not linked to the US. Oddly enough, this tech would probably be banned in the US while the rest of the world embraced it.