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Author: Chapman208 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 9254  
Subject: Re: First draft of IBM FAQs Date: 3/17/2000 3:31 PM
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Frequently Asked Questions About IBM Corporation V0.5, March 15, 2000
Mark T. Chapman

(Note: Some of the information in this FAQ was borrowed from FAQs on other message boards, including those for JDSU, AMZN, and others. My thanks to the respective authors. Any opinions expressed here are mine or that of other posters, and not necessarily those of IBM or The Motley Fool.)

Welcome to the IBM Corporation message board at The Motley Fool. This note is intended to answer some of the basic frequently asked questions about the company. It should help get you started up the learning curve as you research the company. This information should be only the beginning of doing your own due diligence review before investing, not a substitute.

Many of the participants on this board find this company interesting and its business potential a compelling investment opportunity. Please be polite and considerate of others.

If you are new to the Fool check out the following post for helpful tips on navigating and interacting with others here at the site: http://boards.fool.com/message.asp?id=1060256001157000.

Before posting questions read the posts from the last week. Often, your questions will have already been answered there (especially if it is about stock splits or recent quarterly/annual report results). In the meantime, invest a little time reading this note and draw your own conclusions.

Topics Covered:
1) IBM Basics
2) IBM's Long-Term Potential
3) IBM's Analyst Ratings and Financials
4) IBM's Patent Portfolio
5) IBM's Stock Split History
6) How Stock Splits Work
7) How to post a table of numbers to a message board without messing up the columns
8) How to emphasize message text using italics or boldface


1) IBM Basics
The company's stock trades on the NYSE under the symbol IBM. The Motley Fool provides a snapshot of the company at: http://quote.fool.com/snapshot/snapshot.asp?symbols=ibm.

You can look at the stock's performance over the last year at: http://quote.fool.com/chart/chart.asp?symbols=IBM

See IBM's financials at: http://quote.fool.com/snapshot/financials.asp?symbols=IBM.

Go to IBM's web site at: http://www.ibm.com.


2) IBM's Long-Term Potential
IBM has tremendous growth potential over the next decade. The following has two parts. The first lists a number of long-term hardware component and manufacturing contracts, as well as outsourcing contracts (services). The second section describes a number of areas in which IBM technology is leading the way into the 21st century, both in terms of cutting-edge products and licensing patents to others.

Long-term Contracts
Here are just some of the long-term contracts (those worth $200M or more) IBM has signed up just since December '98 (updated since the last posting, with new listings/hyperlinks), in order of decreasing contract value. (The list shows company name, contract amount, type of product or service and contract duration.)

Dell - $16B in component sales; $6B in outsourcing [multi-year]
Acer - $8B, components [7 years]
EMC - $3B, components [5 years]
Cisco - $2B, components [7 years]
Bell Microproducts - $2.0B, components [multi-year]
Galeries Lafayette - $1.2B, outsourcing [15 years]
Nissan - $1.0B, outsourcing [9.5 years]
Nintendo - $1.0B, components (for Jupiter) [multi-year]
Portugal Telecom - $1.0B, outsourcing [10 years]
Bank One - $558M, outsourcing [7 year]
Honeywell/Allied Signal - $550M, outsourcing, hardware, software [7 years]
Meiji Life Insurance (Japan) - $533M, outsourcing [10 years]
Mazda - $480M, outsourcing [10 years]
Ford Europe - $300M, outsourcing [5 years]
Daishi Bank (Japan) - $270M, outsourcing [10 years]
Musashino Bank (Japan) - $260M, outsourcing [10 years]
Mitsui Marine Insurance (Japan) - $235M, outsourcing [10 years]
Telephonica Italia - $200M, outsourcing [multi-year]
CGU (UK) - $200M, outsourcing [7 years]
Sega - (I don't recall how much, but major), components and manufacturing (for Dreamcast) [multi-year]
Apple - (undisclosed, but major), components (copper-based PowerPC G4 chip) [multi-year]
Cazenove (UK) - (undisclosed), outsourcing [10 years]
Vodafone AirTouch (UK) - (undisclosed), Internet portal creation/management [multi-year]

(I believe that EDS and AT&T both signed large outsourcing deals, but I don't recall the details. And I think there was another foreign telephone company. There are probably others I have forgotten as well.)

Here is a great Business Week article about IBM's e-commerce potential: http://www.businessweek.com/1999/99_50/b3659001.htm. Be sure to read the Gerstner interview.

According to an article discussing recent outsourcing deals, there is presently a backlog of $58B in IBM long-term outsourcing contracts just waiting to be completed. So it looks like IBM Global Services will be sitting pretty for the next decade. The long-term component deals kick in another $35B-$40B. That's $90 to $100B already locked in, without even including computer and software sales!

Cutting-Edge Technology
All of this money in guaranteed-income contracts doesn't even include the additional billions to be made in patent licensing (see below for more on patents) for advanced technologies, including:

- Copper chips, advances in optical lithography, switch-on-a-chip, and other advanced manufacturing technologies (http://www.research.ibm.com/topics/serious/chip/). Eventually all computer chips will use copper interconnects. (IBM makes the copper PowerPC chips for the Apple G4 computers.) For examples of the power of copper chips versus older technology, see http://www.msnbc.com/news/382629.asp?0m=O12N&cp1=1, and http://biz.yahoo.com/bw/000310/ny_ibm_rs__1.html. (A follow-up story corrected the statement that the Sun server is a high-end model, but the performance comparison stands.) *** New Addition ***

- Silicon-on-Insulator technology (http://www.chips.ibm.com/bluelogic/showcase/soi/).

- Spray-on flexible transistors (http://www.haifa.il.ibm.com/info/news_spray-on.html).

- Interlocked Pipelined CMOS circuits (http://biz.yahoo.com/bw/000207/ca_ibm_res_1.html), offering five times the speed of current chips, with half the power usage.

Other high-performance/power-reducing/ergonomic technologies that no one else has, but will need in order to compete in the next century, include Projection Reduction Exposure With Variable Axis Immersion Lenses, or PREVAIL http://dailynews.yahoo.com/h/zd/20000302/tc/20000302092.html.

Supercomputers
IBM is now the largest supercomputer vendor on the planet. IBM used the technology pioneered in the development of Deep Blue, the computer that beat world chess champion Garry Kasparov (http://www.research.ibm.com/deepblue/home/html/b.html) to develop the next generation of IBM supercomputers, surpassing Sun and Cray/SGI with nearly a third of the world's 500 most powerful computer installations (http://www.netlib.org/benchmark/top500.html). Now IBM is going even further with Blue Gene (http://www.nytimes.com/library/tech/99/12/biztech/articles/06blue.html), a 1 million processor computer that will eventually process more than 1 petaFLOP (quadrillion floating point operations) per second. It will be used in biological research for the Human Genome Project. (Blue Gene will put not one, but 32, microprocessors in each chip. Each motherboard will contain sixty-four such chips Each of Blue Gene's 64 computing towers will hold eight of these motherboards.)

Storage Area Networks (SANs)
IBM is a strong up-and-comer in the Storage Area Network field, selling more than 1,000 IBM Enterprise Storage Servers (code-named "Shark") with total disk storage of more than 1.5 petabytes (quadrillion bytes), just in the first 95 days on the market in late 1999. Here is a link: http://biz.yahoo.com/bw/991230/ca_ibm_1.html.

Hard Disk Drive Technology
IBM has the biggest/smallest/densest hard drives on the market:

- The first 75GB 3.5" drive (http://www.storage.ibm.com/press/hdd/2000315.htm). *** Updated ***

- The revolutionary 340MB microdrive (the size of a quarter dollar) that can be used in digital cameras, MP3 music players, and other small devices (http://www.storage.ibm.com/press/hdd/micro/990617.htm).

- The third world record in the last year for hard drive storage density (http://www.storage.ibm.com/press/hdd/991004.htm).

- 40% of all new laptop hard drives are made by IBM, and IBM ships more state of the art Giant Magneto-Resistive read/write heads for hard drives than anyone else (http://www.storage.ibm.com/press/mrheads/981217.htm).

Software
With all the focus on hardware and services, many people don't know that IBM is one of the world's largest software vendors as well, with revenues of over $13B in 1999 (including such products as the DB2 multi-platform database, VM and MVS mainframe operating systems, and CICS, MQSeries, LCCM and Netfinity Director "middleware" software). IBM's Lotus subsidiary has more than 55 million users for its Notes e-mail/database/software development system. Tivoli, another IBM subsidiary, provides much of the world's systems/network management software, including its flagship TME 10 product, and ADSM storage backup system. *** Updated ***

Future Technology
IBM has demonstrated a prototype wearable computer (http://www.ie.ibm.com/ie121198.html), about the size of a portable CD player, with a headset (about the size of a pair of glasses with one lens) for video output, with voice recognition. See http://www.jp.ibm.com/esbu/E/wpc/features.html for pictures. Here are a couple of updated articles: http://yahoo.cnet.com/news/0-1006-200-1474374.html?tt.yfin and http://yahoo.cnet.com/news/0-1006-200-1501451.html?pt.yfin.cat_fin.txt.ne.

IBM is currently working on an experimental molecular level storage system called "millipede", already capable of storage levels 100 times denser than hard drive technology (http://biz.yahoo.com/bw/000315/ca_it_radi_3.html). *** New Addition ***

For another interesting future technology, how about the PAN (Personal Area Network) (http://www.research.ibm.com/resources/magazine/1997/issue_1/pan197.html)?


3) IBM's Analyst Ratings and Financials
For current analyst ratings, EPS numbers, and last five quarter earnings history, go to: http://biz.yahoo.com/z/a/i/ibm.html

For the most recent Income Statement, Balance Sheet, and Cash Flow statement, refer to: http://biz.yahoo.com/fin/l/i/ibm.html.

For IBM insider trading info, see: http://biz.yahoo.com/t/i/ibm.html.


4) IBM's Patent Portfolio
IBM has led the world in US patents received for the last 7 years in a row. This press release talks about some of the 1999 patents received: http://biz.yahoo.com/bw/000111/ny_ibm_1.html.

The press release discussing IBM's 1998 patents can be found at:
http://www.ibm.com/press/prnews.nsf/Searchvw/6e897902e509f243852566f600505932. It's still worth reading, as it contains a lot of interesting material. According to the release, IBM's patent portfolio accounts for over $1B per year in licenses.

(For more information about U.S. patents in general, go to the IBM Patent Server at http://www.patents.ibm.com/ibm.html. This server lets you access over 26 years of U.S. Patent & Trademark Office (USPTO) patent descriptions as well as the last seventeen years of images.)


5) IBM's Stock Split History
To find out when all of IBM's stock splits have occurred, all the way back to 1964 go to: http://quote.yahoo.com/q?s=IBM&d=mys. This chart also shows IBM's stock price growth since 1964, as compared to the S&P 500.


6) How Stock Splits Work
Here is an excellent explanation of stock splits in general, written by Mark Hirschey:
http://boards.fool.com/Message.asp?id=1060151006647000&sort=id.

Conventional wisdom holds that splits are essentially non-events. If you order a pizza cut into 16 pieces instead of the usual 8 the cost of the pizza is no more than before (despite having twice as many slices), because the per-slice price is half of what it was). Likewise, owning twice as many shares of stock as before (for half the price per share) doesn't directly affect the total value of your investment.

Nevertheless, there are a number of advantages to stock splits, as I explain in this post:
http://boards.fool.com/Message.asp?id=1190244001061000&sort=id.


7) How to post a table of numbers to a message board without messing up the columns
There are two ways. You can click the "Table Data" button when submitting a post, and the whole post will be presented in a fixed-width font. Or, you can put just part of the post in a fixed-width font by typing:

<x>This part of the post will be in fixed width font</x> (except use PRE for "preformatted" in place of the x)

Note: It is always a good idea to use the "Preview" button to see how your message will look before using the "Submit" button to send it.

8) How to emphasize message text using italics or boldface
Use the same format as in the previous topic, except instead of "PRE" use "b" for bold, and "i" for italics (without the quotes) inside the < and > symbols.

I hope you find this useful. I'll update these FAQs periodically.

Take care. Mark.
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