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They are not going to put in 1 million larger PCs to do all that work, surely not for those requiring multi-user concurrent access to large databases, and there is a real lot of that going on. I bet even a "small" outfit like L.L.Bean's catalog service with on-line real-time inventory and ordering (by them from their suppliers) would more likely need to be run on a main-frame. Now the main frame might well be somewhere in the cloud, but IMAO, there will be more of those main frames in the cloud than the average home-user might suspect.

I don't know what the answer is, but I strongly suspect that Buffett invested in IBM, not because he had any conviction about whether it was going to be mainframes or PC servers doing the work, or whether it would be centralized or distributed, or whether this would take place in the cloud or on a company's own servers, but rather, that it would be IBM that would be helping companies make these decisions, set them up, maintain them, choose software, etc. More and more, they are the consultant, not the supplier, and this is the sticky part of their business. If you've outsourced a lot of your IT intelligence to IBM, then you are very unlikely to ever change, just like you are unlikely to change accountants.

The fact that IBM actually makes some of these components (mainframes, some software) does make the investment decision a little more complicated, because these parts of their business ARE vulnerable. And also because the client wants the best hardware and software, and consulting a company like IBM that makes some of those components puts them in a conflict of interest.

So if you are investing in IBM because you believe that its Watson computers are going to be successful against Google, I think you are barking up the wrong tree. And if you are dissing the investment because you think the cloud makes IBM's mainframes vulnerable, you may be missing the general idea.

Regards, DTM
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