Here are the basic facts: in July, IBM Corp bought Lotus Development Corp for just over $3,500m. In October, IBM said it figured out Lotus wasn’t worth quite that much. So there would be an immediate write-off of $1,840m. IBM also said it was going to amortise about $1,500m of the remaining Lotus book value at the rate of $100m per quarter for eight or nine quarters, then at $50m a quarter for 12 quarters. The total write-off, then, will exceed $3,200m. Lotus is worth $300m to IBM’s bookkeepers, notwithstanding that Big Blue had paid 12 times as much only three months earlier. This quarter, IBM will take an $800m hit to cover anticipated lay-offs and facilities closings. The nearly $9,000m charge IBM booked in July 1993 to cover such expenses was about 10% short. While IBM was telling Wall Street analysts about its situation, it mentioned it happened to be need of another loan, a two-component bond issue with a total face value of $750m. Was there a sell-off in IBM shares, which have more than doubled since their nadir in 1993? On the contrary. The company’s shares jumped to $100. OK. We were wrong. We have been told time and again that Wall Street looks six months ahead. So let’s do that. Let’s imagine it is the middle of next year. IBM will be will into the second generation of CMOS S/390 chip sets, and developing the third. That will put it within one and a half semiconductor generations – each 12 to 18 months in duration – of the circuitry it needs to replace the 9021s it delivered four years earlier. By mid-1996 IBM will surely be shipping Ramac II disks it planned for this year, but Magstar tape will be a year from its (frequently amended) date of practicality. The RISC AS/400s planned for late 1995 will be hitting their stride, if not their original price targets. And IBM will still be explaining Lotus. During the same six months, IBM’s competitors will not have sat still. Intel will be announcing its second series of P6 chips and sketching the P7. Microsoft will be readying its next generation of both desktop and server software. And EMC? Netscape? Hitachi? Compaq? Hewlett-Packard? How silly of us! We thought that IBM was warning investors when it was doing just the opposite.

Taken from the November 1995 edition of Infoperspectives, published by TechnologyNews Ltd, 110 Gloucester Avenue, London NW1 8JA, telephone 0171 483 2681, fax 0171 4834541.Copyright (C) 1995 Technology News Ltd. All rights reserved