Business Tech

Sun Microsystems shares fell as low as about 13 percent Monday afternoon, steeper than the declines experienced by the broader markets. Investors, who are awaiting word on whether speculation of an IBM merger will become a reality, apparently were spooked, sending shares as low as $6.82 a share in afternoon trading.

(Credit: Yahoo Finance)

Shares of Sun lost 59 cents to close at $7.24, down about 7.5 percent, Monday.

The Dow Jones Industrial Average, meanwhile, fell as low as about 4 percent to 7,437.59 during intra-day trading and the Nasdaq dipped about 4 percent to 1,484.98. The Dow and Nasdaq were each down about 3 percent at the close.

While it's not immediately clear what may have spooked Sun investors, it is clear that IBM has an interest in migrating Sun's customers from Sun's SPARC architecture to IBM servers based on an x86 chip architecture, according to IBM BladeCenter Vice President Alex Yost, in a recent interview with Brooke Crothers, who writes CNET's Nanotech: The Circuits Blog.

Yost noted in that interview that a number of IBM customers are seeking to use Sun's Solaris operating system on x86-based servers or Linux on x86 servers.

In a more limited fashion, some of Big Blue's customers have a special requirement to use Solaris on Sun's SPARC architecture, Yost noted in that report.

IBM issued 1,674 layoff notices to U.S. employees in its applications services business on Thursday, as part of a larger round of anticipated cuts to its Global Business Services unit, according to a national representative of Alliance@IBM, an affiliate of the Communication Workers of America, which is seeking to unionize IBM.

The applications services business is one of several areas in IBM's Global Business Services unit, a massive consulting arm that last year generated $19.6 billion in revenue for Big Blue. The Global Business Services unit also posted a 9 percent increase in its revenue.

Alliance@IBM anticipates between 4,000 to 5,000 job cuts to be issued Thursday at IBM's Global Business Services unit, noting the cuts would be on par with those layoffs taken earlier in the year.

"We saw 5,000 job cuts in January-February and with the 5,000 we're expecting today, that brings it up to 10,000 cuts for just this quarter alone," said Lee Conrad, national coordinator for Alliance@IBM. "Many of these jobs are moving offshore and it's a disturbing sign for IBM and the nation."

An IBM spokesman was not immediately available for comment.

UBS analyst Maynard Um, meanwhile, noted in a research note Thursday that he finds it unlikely IBM will transfer all of the affected U.S. positions to cheaper overseas labor markets. As as a result, he anticipates a potential benefit of 10 cents to 14 cents a share to IBM's 2009 earnings.

He also noted that the cuts could signify more aggressive action than previously anticipated from IBM, though it would not be out of line given feedback he has received from the industry suggesting greater employee restructuring.

Um stated in his research note:

In Feb., IBM reaffirmed 1Q09 & FY09 EPS guidance, noting Jan. results were consistent with its outlook, aided by a strong software pipeline & solid long term services bookings. Read-through from potential further restructuring, in our opinion, is mixed. Operational efficiencies may be beneficial to EPS, but may also reflect a more challenging rev environment than thought (perhaps more in the US).

IBM shares were up less than 1 percent to $98.47 a share in morning trading Thursday.

With the recession continuing its hold on the economy, IBM is reportedly preparing for another round of layoffs, according to a report Wednesday in The Wall Street Journal.

The cuts are expected to affect a large swath of U.S. employees in IBM's global business services unit, with a number of the jobs reassigned to workers in India, the Journal reported.

Talk of pending layoffs in IBM's services unit is making the rounds on Alliance@IBM, a Communications Workers of America affiliate attempting to organize IBM workers into a union.

On the Alliance@IBM site, two posts Wednesday referenced pending layoffs in the services unit:

Comment 3/25/09: I talked to two different Band 10s in IBM Global Business Services yesterday who have both said that tomorrow will be a big day for firing in almost all of the GBS business units. Both of them are expecting that they will be cut because the percentages are going to be higher at the higher levels. Both made reference to this could be called a black Thursday. I know that several employees have been contacted by their manager to have a short meeting that day. My manager has not said anything to me yet but I am already preparing myself for the news. -Anonymous-

Comment 3/25/09: 'there is definitely a GBS lay off coming very soon. Big lay offs across the board' Thank you, -modest mouse-. This is welcome news to those being tortured on the bench. -anonymouse-

IBM was not immediately available for comment.

In January, IBM had a round of layoffs, but declined to disclose the area of the cuts, or location. Published reports, however, referred to North America as the location of the layoffs.

Big Blue tentatively has its first-quarter earnings report scheduled for April 20.

Shares of Sun Microsystems took a hit in Monday morning trading, falling at least 7 percent while the broader markets advance.

Sun fell as low as $7.53 a share, following reports Friday in The Wall Street Journal that IBM is currently engaged in combing through Sun's contracts, as part of the evaluation process on whether to move forward with an acquisition.

Sun's shares started sinking shortly after a big jump on word of a possible acquisition by IBM.

(Credit: Yahoo Finance)

Sun's shares had been on a rocket ride, after reports surfaced last week in the Journal that IBM was in negotiations to acquire the company for roughly $6.5 billion.

After the reports surfaced, Sun's shares shot up 79 percent to $8.89 a share. The struggling hardware maker's shares had largely languished below $5 a share for the past five months.

As it reportedly shows IBM its contracts, Sun is approaching the end of its fiscal third quarter, which could provide Big Blue with additional data for its decision making.

IBM announced Wednesday plans to deliver its software via Amazon Web Services, in a move to push its software into the clouds.

IBM will use Amazon's Elastic Compute Cloud (EC2) to offer its customers and third-party developers its software based on a pay-as-you-go system.

Under the arrangement, users will have access to IBM's DB2, Informix Dynamic Server, WebSphere Portal, Lotus Web Content Management, WebSphere sMash and Novell's SUSE Linux operating system software.

IBM is also providing free Amazon Machine Images for development and testing purposes, which is designed to allow developers to quickly build pre-production applications.

Big Blue expects to have its software available in an EC2 beta in the coming month and will later announce its pricing.

Updated at 1:56 p.m. PST, with additional earnings information and after-hours trading performance.

IBM reported Tuesday a 12 percent increase in fourth-quarter earnings, coming in stronger than analysts' expectations.

Big Blue generated net income of $4.4 billion, or $3.28 a share, for the quarter, up 12 percent over the same period a year ago.

Wall Street had expected Big Blue to post earnings of $3.03 a share for the three-month period.

The technology bellwether also reported that it is not only on track to achieve its previously stated goal of generating an annual profit of $10 to $11 a share in 2010, but that it's ahead of the pace it set out to get there.

IBM shares were up nearly 4 percent, to $85.14, in after-hours trading Tuesday.

"With our strong financial position, solid recurring revenue and profit streams, and global reach, we are confident about 2009 and, based on our 2008 performance, we are ahead of pace on our roadmap for $10 to $11 per share," Samuel Palmisano, IBM chief executive, said in a statement.

Revenue, meanwhile, reached $27 billion in the fourth quarter, down 6 percent over last year. But when accounting for currency changes, the revenue decline was 1 percent. Analysts had expected IBM to generate revenue of $28.3 billion for the quarter.

"A strong fourth quarter capped an outstanding year," Palmisano said. "In 2008, IBM performed well in an extremely difficult economic environment. Clearly our strategic transformation--migrating to the more profitable segments of the industry, investing in growth regions of the world, and driving productivity through global integration--is continuing to pay dividends."

During the quarter, the Americas generated revenue of $11.5 billion, up 2 percent over last year when adjusting for currency changes, for example.

Big Blue's software revenue was up 9 percent, when adjusting for currency, to $6.4 billion, while revenue in global technology services was up 3 percent to $9.6 billion when adjusting for currency.

Its global business services was flat, when adjusting for currency, to $4.7 billion, while its outsourcing services contracts generated $17.2 billion in revenue in the quarter, up 2 percent when factoring in currency changes.

Update at 9:12 a.m. PST, with comment from IBM.

T3 Technologies filed a complaint against IBM with European antitrust regulators on Tuesday, alleging that Big Blue is blocking competition by tying its operating system with its mainframe hardware.

T3, a maker of IBM-compatible mainframes for small to midsize companies, is asking the European Commission to investigate IBM's market pricing and alleged effort to eliminate competition by withholding its patent licenses for its mainframe operating system and certain intellectual property.

"Since November 2006, we have not been able to sell any of our hardware. No rational buyer would buy any hardware without software," said Steven Friedman, T3's president.

T3 currently offers maintenance and support for its existing IBM-compatible mainframe customers and integration services.

IBM, in a statement, contends there is no violation of antitrust laws:

IBM has not seen T3's alleged EU complaint. Nonetheless, IBM is confident that it is no violation of competition laws for IBM to rightfully seek to prevent another company from violating IBM's intellectual property rights. IBM has spent great time and expense developing its technology and will defend its intellectual property rights vigorously.

T3, a small, privately held mainframe company in Florida, alleges, however, that IBM is engaging in behavior that previously had been barred under the consent degree that the Department of Justice began to phase out in 1997 over a five-year period.

T3 began marketing its IBM-compatible tServer mainframe line in 2000, using software from Fundamental Software that was based on an IBM patent license.

But in 2005, T3 signed an agreement with Platform Solutions Inc. (PSI), which would enable the small mainframe maker to create a more robust mainframe system, Liberty, that would put it in further competition with IBM, Friedman said.

The following year, T3 was hit with a one-two punch, as it shipped Liberty. IBM said it would not license its operating system to PSI or to Fundamental Software any longer.

PSI and T3 filed a lawsuit against IBM in the U.S. District Court for the Southern District of New York in late 2007, alleging Big Blue violated the nation's antitrust laws and engaged in unfair competition.

PSI, however, was acquired by IBM in July. T3 is continuing with the lawsuit, which is scheduled to go to trial in mid-summer.

Since 2006, T3 has laid off 80 percent of its workforce in the U.S. and Europe, as its revenue has dropped by a similar proportion, Friedman said.

"IBM has left the industry with one (mainframe) vendor. They have successfully foreclosed all competition in this industry," Friedman said.

With the European Commission having recently shown it will pursue tying cases, such as in the Microsoft and Media Player case and now its recent objection to tying Microsoft's Internet Explorer browser with Windows, Friedman said he is optimistic the European Commission will investigate its complaint.

IBM on Monday unveiled consulting and implementation services for cloud computing, as well as a related validation program.

Cloud computing is designed to cut costs for companies by moving such functions as data storage, security, and enterprise applications onto the Internet. A company can control its own cloud system, outsource it in its entirety, or adopt a hybrid model.

IBM Global Business Services, seeking to capitalize on the rising popularity of Internet-based storage and computing, will oversee the company's cloud-consulting services, aiming to provide customers with assessments as to whether building their own so-called cloud, or transferring data and applications to a hybrid private-public cloud or a public cloud would be most cost-effective. It plans to aid customers in installing, configuring, and delivering cloud-computing services in the data center.

IBM on Monday also unveiled a Resilient Cloud Validation program to provide customers with a means to validate the reliability of third-party partners who deliver applications and services via remote servers.

IBM's third-quarter revenues coming out of Europe, the Middle East, and Africa are tracking on a similar growth pattern as the first half of the year, the company announced on Monday in a Securities and Exchange Commission filing.

Big Blue, which is meeting with European investors, said revenue growth during the first two months of the third quarter is "consistent" with the company's EMEA performance during the first six months of the year.

For IBM, that could bode well for its third quarter, given that the EMEA region accounts for roughly a third of its overall revenues.

Last quarter, EMEA revenues rose 20 percent, to $9.8 billion, and in its first quarter, EMEA performance was up 15.7 percent, to nearly $8.8 billion. While those figures appear impressive, when adjusting for currency rates, IBM posted a 7 percent revenue gain in the second quarter and a 4 percent gain in the first.

In its first quarter, IBM characterized that growth level as reflecting a "moderate IT-spending environment."

Big Blue is considered a bellwether stock, with investors looking to its financial performance as a potential indicator of how other hardware makers and chipmakers will perform in the same given quarter.