IBM earnings shed little light on Vermont plant

IBM beat revenue estimates in the second quarter, the company announced Thursday.

But talk of the tech giant divesting its manufacturing wing was noticeably absent from the quarterly conference call updating investors on earnings.

Rumors of a pending sale of its chip-making unit have concerned Vermont workers, business leaders and state officials for months. IBM’s plant in Essex Junction is one of three major facilities in its Systems and Technology Group, which manufacturing rival GlobalFoundries reportedly was negotiating to buy.  Another round of conjecture Tuesday hinted the deal may have fallen through. 

Martin Schroeter, IBM’s senior vice president and CFO of finance and enterprise transformation, said Thursday the firm is staunchly committed to leading the semiconductor market.

“We’ve been very vocal about our goal to remain the absolute leader in high-end systems,” Schroeter said.

The commitment comes despite the division’s continued decline in revenue growth, which Schroeter said dragged down the company’s overall profitability — but not as much as it has in the past.

Revenue in the Systems and Technology Group dropped 11 percent this quarter compared to a year ago, IBM said. But Schroeter said he believes IBM is on track to stabilize the division’s profit base for the year. The STG group’s revenue fell 23 percent, year-over-year, in the first quarter.

The Systems and Technology Group is heavily involved in emerging markets, where IBM has seen significant declines. Along with other factors, that downturn hit STG hard, Schroeter said.

But last year’s layoffs are borne out in this year’s cost savings, he said. And new products to meet booming demand for cloud services and big data computing power will steady the keel, he said.

Schroeter cited a $3 billion investment IBM announced July 10 as evidence of the company’s confidence.

“This investment is clearly focused on the distant future,” Schroeter said. “We have to figure out what the post-silicon world will look like.”

The sizable research and development investment — it’s triple what IBM put into initiatives for its cognitive technology system, known as Watson, this year — is primarily geared toward shrinking semiconductors to 7 nanometers and smaller.

The smaller size will allow computing technology to move beyond silicon architectures and into synaptic computing, quantum devices, carbon nanotubes, photonics and other futuristic innovations “that could transform computing of all kinds,” according to company spokesman Doug Shelton.

In the conference call, Schroeter pointed repeatedly to such technological innovations, cloud computing, big data and analysis, security and mobility as the future of IBM’s profitability.

Additionally, IBM announced Tuesday a significant partnership with Apple to develop native applications for iPhone and iPad devices — a move some financial observers consider a “win-win” for both firms.

The fate of IBM’s Essex Junction plant amid such investments, however, remains unclear.

The $3 billion research and development investment primarily involves teams in New York, California and Europe.

And the aging facility, which produces much larger technology than current markets demand, is known more for manufacturing than software development.

Schroeter also referenced IBM’s ongoing strategies to align its portfolio with high-growth products and services, and to wind down its manufacturing operations.

Overall, IBM reported a 2 percent drop in revenue for the quarter.

Hilary Niles

Comments

  1. jeff Green :

    May I give opinion to “shed some light” in IBM Essex? Vermont has spit on IBM for years. You name it. Politicians, towns, property taxes, activists, enviro nut jobs, electric rates etc…It starts with Bernie Sanders walking a picket line, WHILE he was a US Congressman, to UNIONIZE the IBM plant..which already paid some the highest wages, taxes and benefits in VT. Forget it was (note: past tense) vermonts largest employer. IBM bent over backwards for Vermont. For many, many years the chips at IBM Essex were THE highest cost production. IBM certainly could have had the same ones made in Taiwan for FAR less. But IBM stayed. Yes, they have cut bac, steadily so. But IBM knew that IBM was so huge to the VT economy, they couldn’t move as fast as they like (shut down). So every year of whatever the employment figure, was a gift to VT. If IBM was soley concernd about money and profit, IBM Essex would have been shut down a decade ago, and all chips similar – made overseas. So you have BERNIE SANDERS, PICKETING IBM to unionize….which has been for years a HIGH cost plant, so a union can make it doubly more expensive. But it get’s better. THEN, twin Senators Jeffords and Leahy wanted a piece of Bernie’s PR action. A bunch of years ago, IBM had a big employee issue with switching to a “Cash Balance Pension Plan”. I do not defend IBM for that, or comment. But what happened was that Leahy and Jeffords got on a NATIONAL SOAPBOX and hauled ALL the top execs of IBM to Washington for Senate hearings – to DENIGRATE IBM. It was pure political grandstanding and CBS and Dan RAther headlined it as news. However, not a SINGLE other Senator or Congressman was STUPID enough to denigrate IBM senior exectutives like that – publically -, because IBM has employees and plants in almost every State. Only our three bozos (Sanders, jeffords, Leahy) went after public humilation to trash IBM. And IBM asks WHY? Sanders walks a picket line to unionize IBM? When Essex IBM is already over-the-top high cost? IBM did not close down and move it to Taiwan. Then bozos Leahy and Jeffords haul the top IBM execs to a McCarthy-like Senate hearing over the CAsh Balance problem. EVERY other Congressman and Senator afdressed that issue <>. Not Vermont dopes. So now Vermont is all in a tizzy that a sale of Essex fell thru, and it seem very likely to me that IBM has had enough – of getting spit on by vermont. I predict large layoffs and possibly a total shut down. Every item that is made in Essex can be made more cheaply elsewhere. “Every action has an equal and opposite reaction”. “Reap what ye shall sow”. If all the liberals, socialists and progressives ever look back at how they treated the largest VT employer and taxpayer, well maybe they would……..no, they never will. They will never see, nor understand, the consequences of their activism with IBM the last decade or two. They spit on IBM, and now they are worried they will leave? In a couple decades a book will be written on Vermont..and all will look back and say, ‘How stupid were we…..”

    • Philip Beliveau :

      I find it hard to believe that any of the history you bring up has any bearing on the present decision making of IBM about the Essex plant. Liberals, socialists and progressives! Oh my!

      • jeff Green :

        you find it hard to believe?…that the history of how badly Vermont has treated IBM essex, has any bearing? Bunk. VT has spit on IBM for years. I’ll tell you a true story, but of course you will poo-poo it, cuz’ you have your head in the sand. My sister has a best friend. Her husband works in jet maintainance for the IBM fleet. Not long after Jeffords and Leahy put up the IBM CEO and other execs, in front of a grandstanding Senate hearing, to humiliate IBM for what they were trying to do on the “Cash Balance Pension” switch (which I think was not above board by IBM)…this fellow was preparing an IBM jet for a trip. Several execs were waiting and he overheard them talking about how much they hated Vermont and what Leahy and Jeffords were doing. They said they couldn’t wait to get IBM out of Vermont. They were very angry. This fellow, knowing we lived in VT, relayed it back. The upshot was that ever since that stupid public dress down (which our Senators took to the CBS evening news), IBM has been on an almost yearly round of layoffs. IBM could have easily has the same chips made overseas for far less. But they didn’t. They kept it open, but on what I think was a very calculated “wind down” because they knew that an overnight closure of the plant would have devastating effects on the whole of Vermont. So go ahead and poo-poo it. I know you will think I made it up. But I have not. Vermont has treated IBM poorly for a long, long time. New York State was the clear beneficiary of billions spent in new plants and jobs. Why on earth woudl IBM expand in VT, if our Congressman spouts hate speech on IBM and walks a picket line to unionize it? And then Jeffords and Leahy channell their inner Joe McCarthy and put on what basiclly was a Senate show trial for the pension flap. Is it any wonder IBM lays people off, year after year.and pours billions into a new New York State facility? If you don’t see the answer, then God help Vermont.

        • Philip Beliveau :

          I have no reason to doubt your story. I think the execs you talk about in your story may not even be working for IBM any longer? They likely have little influence on the global IBM? IBM never wanted to be here in the first place and only opened the Essex plant on the insistence of Watson who wanted to be close to skiing. That is a story told to me by my late father who was an IBM engineer for over 30 years. I hope Vermont does not get in to the rat race of states giving huge incentives to companies to site operations in Vt. When the incentives run out the businesses move on.

          • David Dempsey :

            My father was in the 10th Mountain Division in WW II. In the 60’s he became a part time instructor at Smugglers Notch . I wasn’t very old but I remember sking with him and his friends sometimes when he wasn’t teaching. We often skied with a guy name Tom, but I didn’t know the guy owned the ski area also IBM until many years later. He did enjoy skiing for sure, but I have no idea if the skiing was what brought IBM to Essex.

  2. Nancy Gardner :

    IBM’s internal accounting can be manipulated to show that IBM Essex is making money or losing money – the same way that IBM and other multinational corporations can say with a straight face that they the most profitable units, groups, or sectors of their business is in Ireland, Bermuda, Luxembourg, etc. Billions of corporate profits are sitting on the books of subsidiaries purposely located in foreign tax havens. How did those profits get there? They were shifted there by the CFO and internal accounting of big business.

    • jeff Green :

      I rest my case. You perfectly show the inner hatred of businesses. Many years ago, IBM employed about 8,000. My guess is that in not so many years, there will be none. And you will believe that it is all IBM’s evil corporate machinations?? You pull things out of the air, and use a ‘Straw Man” argument…that since some multi nationals do use overseas accounting gimmicks, that you post with certainty that surely IBM is doing the exact same thing in Essex? You have no fact or basis to back up such pitiful innuendo…..and this is the exact kind of stuff that is thrown at, not just IBM, but almost any larger business in VT…..basically hate speech, class warfare and evil corporations.. Why on earth would IBM, or any other large business, ever want to locate here? And create tons of high paying jobs and tax revenue? Answer is, they don’t. They would rather leave as soon as practible..as IBM clearly is. Hello New York State.

      • John Greenberg :

        Jeff Green,
        “Why on earth would IBM, or any other large business, ever want to locate here?” For the same reason they want to locate anywhere: to make money. It’s their business. And if that weren’t enough, it’s also management’s fiduciary responsibility to the shareholders of the corporation.

        IBM came to Vermont to make money. They’ll stay in Vermont as long as they think they can make more money here than elsewhere. When the day comes that closing the plant — or moving its operations — is more profitable than running it, they’ll either sell it or close it.

        The rest is anecdotal bunk. And as to your accusation about “the inner hatred of businesses,” I read precisely the same things Nancy Gardner brings up in Barron’s. Do you think they share Ms. Gardner’s “inner hatred of business?” Apparently, you do.

      • Art Fern :

        You may want to check Apple’s portfolio Jeff. Mr.Cook even admitted it and offered a “Tax plan” to bring some back! The hypocrisy in the USA is astounding!

      • Walter Carpenter :

        “Why on earth would IBM, or any other large business, ever want to locate here?”

        Why did they locate here in the first place? And what is wrong with a state like Vermont trying to protect its people and its environment from the abuses of a multi-national? I would bet that the demise of IBM in Essex, as well as in Fishkill, and other places which John mentioned, began when the corporations received tax advantages to move their manufacturing to lands where labor is dirt cheap.

  3. Ken McPherson :

    So I wonder what Germany, Hungary, Kingston NY, Rochester NY, Boca Raton FL and a number of other locations did to make IBM unhappy. They have all suffered plant shutdowns in the past 15 years or so. Fishkill is seemingly on life support. And I guess that IBM senior management really likes China, since they are expanding production there.

    IBM is a global business deriving a majority of its revenues from non-US sources. While Essex Junction is critically important to Vermont, it is just another plant to IBM. And plants open, change focus, and move based on ongoing market requirements. Punishing Vermont for any perceived or real transgressions is just not a priority for them.

    IBM wants to be the dominant player with leading edge products in its chosen markets. Its R&D in state of the art processor, storage, and applications technologies are at the bleeding edge. It is not, and does not want to be, a competitor in the commodity world of chip production.

    IBM deals well with a worldwide array of health care plans. Dealing with Sanders and Lahey is a heck of a lot easier than dealing with many of the foreign governments they encounter.

    It’s time to get over it. Essex Junction will be phased out in the near distant future, whether or not it is sold. Vermont needs to focus on an economic development strategy that plays to our strengths, not to accidents of history.

    • Art Fern :

      Well said Ken.

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