Slashdot Mirror
IBM Says SEC Probing Its Accounting
chriscooper1470 writes "International Business Machines Corp. on Monday said that the U.S. Securities and Exchange Commission had begun a formal investigation of how the world's largest computer company accounted for some revenue in 2000 and 2001."
"Yes, thank you very much. The news is just starting to hit. Yes, it looks good so far. Well, it will take some work, but they'll look to settle the case after they lose about 80% of their market capitalization. Expect the usual donation, and good luck with the finding WMD thing."
I think it's: Dell is the U.S. leader in PC sales and IBM is the international/world leader.
TW
Television is dead. Long live That Weasel Television
Well, the bigger they are the bigger they fall, unless they are so big that they fall upon themselves and recieve a cushioning effect.
Insert Witty Remark Here ===>____________________________
Depends on how you define computer. IBM's the world's largest hardware company, and the world's second largest software company (both by revenue).
SAN FRANCISCO (Reuters) - International Business Machines Corp. on Monday said that the U.S. Securities and Exchange Commission had begun a formal investigation of how the world's largest computer company accounted for some revenue in 2000 and 2001.
Armonk, New York-based IBM said in a statement that it "believes the investigation arose from a separate SEC investigation of a customer of IBM's Retail Store Solutions unit," which sells electronic cash registers and other point-of-sale products.
IBM shares fell almost 3 percent on electronic trading network Instinet after the announcement, which raised the specter of the accounting scandals of Enron, WorldCom and others that have undermined investor confidence.
"This is big news because it goes back to the old accounting scandals that have shaken investor confidence, starting with Enron," said Burton Schlichter, senior market analyst with Lind-Waldock & Co., a division of Refco LLC.
The Retail Solutions unit is part of IBM's personal systems division, and IBM does not break out revenue for that unit, said spokesman Bill Hughes.
"The SEC is seeking information relating to revenue recognition in 2000 and 2001 primarily concerning certain customer transactions," Hughes said.
Hughes said he would not name the customer.
The SEC advised the company that it has not reached any conclusions related to this matter, IBM said, adding that it is cooperating with the federal agency.
"IBM believes that its business and accounting policies comply with all applicable regulations," the company said.
A spokesman for the SEC declined to comment on the matter.
"This might prove to be a nonissue and their claims to credibility might be intact, but it's out there, and it's an overhang," said Marty Shagrin, analyst at Victory Capital in Cleveland, Ohio, which owns IBM shares.
IBM's accounting has come under scrutiny over the years, with investors criticizing the company for its lack of disclosure. Last year, IBM addressed some of those issues by increasing the amount of information that it provided.
But some investors have continued to say that the company has not abandoned the earnings management habits that enabled it to produce quarter after quarter of steady earnings growth under former Chief Executive Louis Gerstner through such methods as share buybacks.
James Grant, publisher of Grant's Interest Rate Observer and a longtime critic of Big Blue, said he had not pored over IBM's books recently but found IBM's accounting aggressive when he started focusing on the company in the late 1990s.
"We found it aggressive and promotional and questionable and I think it's appropriate that the SEC should be looking into it," said Grant.
In April of 2002, the SEC disclosed that it had opened and closed a preliminary inquiry into IBM, but it did not specify the focus of the investigation.
Shares of IBM were halted by the New York Stock Exchange on Monday afternoon. In the regular session, the shares fell 62 cents to $87.42, not far off its 52-week high of $90.32.
On Instinet, IBM shares fell to $85.
Simple...they made it by stealing IP from SCO! Case closed!
Contrary to my usual function, I'll actually try to avert a flame war here by bringing some pragmatism to /.
Before the leftist cries for massive oversight and regulation start spewing forth from the electronic abyss, let me remind you all, dear readers, that regulation is only going to make a bigger mess - look at Health Care. The regulatory code becomes the type of swiss cheese policy that only tends to lead to more violations, more investigations, and more spurious litigation all around. (That's a separate rant, as I work in the industry - I will elaborate if my case must be made that the Health Care financial situation is a mess, but I think most people realize that as fact.)
But no, you say, deregulation will give those heartless plutocrats the freedom to stomp all over us! Absolutely. What do we do? The hell if I know - but it seems clear to me that the answer lies in trying to simplify what is a corrupt, bloated mess.
They've obviously heard about IBM buying out SCO any time now...that's sure to make them the biggest...
In other words, IBM is known to play by the rules and treat investors fairly. If they were ever guilty of anything, it would be that about 6 years ago they didn't disclose as much information as they should have to investors. That's much different now.
It looks like the issue was did they put the revenue in the right quarter. Since they are not talking about 2002 or 2003, it means that the contracts in questions were fully realized. So it was just shifting stuff from one quarter into another not wholesale fake revenue like Enron. On big long drawn out contracts it is real tough to tell where to put the revenue and expenses. This is just a non-issue and its not really a tech issue.
Even if they are a little "aggressive" with their accounting I highly doubt they'll be in the type of trouble Enron is in. I don't think IBM is going away anytime soon, and they (the SEC) are just investigating the accounting for 1 division relating to 1 customer. I don't think there's much to worry about (famous last words?)
There are only 10 kinds of people in this world... those who understand binary and those who don't
I highly doubt this is anything like Enron/Worldcom/Adelphia. Companies, especially tech oriented companies got scrutinized pretty well after those big guns fell. I'm hedging my bet on there were some small discrepencies, but nothing larger than 100 million. Sure, that's a lot of money, but not as much as the Billion our buddies at SCO want.
On a personal note, i haven't heard of rampant, silly hiring by IBM. I was told by a Worldcom employee in the summer of '01 that they'd hire any EE they could get their hands on. Wow, i though, they must be booming to be hiring like that. Obviously not, but i haven't heard of any strange business happenings from IBM.
Too bad my co-op here hasn't used those accounting methods... they're kinda hurting right now. And a couple years of faked prosperity would be a good learning experience :P
IBM's market share reaches far wider than Dell's. First off, IBM is heavy in the mainframe market, as opposed to Dell which only sells intel-based servers. Secondly, IBM also has a large non-US marketshare, of which Dell only recently broke into.
Just because Dell sells more PC, that doesn't make them the largest "computer" company.
Apart from causing fluctuations in IBM shares temporarily, I don't see how this will have any long term impact on IBM. :-)
Surely this has happened before. Many big business use as the article describes "aggressive accounting" for promoting confidence in investors. If you are an investor you better be aware of this.
Unless there are wide gaps in balance sheets of 2000 and 2001, which would mean a enron , worldcom like scenario, there is not much to worry about, i guess
But then I don't own any IBM shares either
for the last time people, I am "frodo from middle eaRTH", not "middle eaST".
Well you see... they've been selling free software, so how could they possible have any revenue from it?
I bet if we look at their spending, there will be free software in there. No company would be dumb enough to sell free software, so that must be an accounting irregularity too!
As a search on Google shows an SEC probe has happened to a lot tech. of companies.
Other than the Fact that IBM is a major player in the SCO story, does this deserve a mention on the slashdot frontpage? Is this in any way an effort to slashdot the IBM share prices? Why does the submission come from somebody who has never earlier posted on slashdot
Did Iraq have WMD?
.ACMD setaloiv siht gnidaeR
The inquiry is related only to some possible inconsistencies related to IBM's point of sale (POS) unit, which is only responsible for around US $300 million of revenue. The SEC has not revealed anything about the inquiry, but IBM has said that it stems from an earlier inquiry related to this business unit. More details here. Either way, anyone that is shouting "Enron!" at this is either foolish, uninformed, or possibly both.
And IBM makes cutting-edge chips...and IBM is heavily involved in "blue sky" R&D for stuff like carbon nanotube transistors...and IBM sells services and consulting...and IBM develops OS's (ties in to your mainframe point).
IBM and Dell really aren't in the same league. IBM invents things. Dell assembles them.
-Looking for a job as a materials chemist or multivariat
IBM "big blue" has recently checked its books and made note that it has in fact been hording all the money from the code that they stole from SCO and then gave to the massive company called Linux (tm). Linux is an "open source" project that has been under the guise of a "free community" for over 10 years now and recently was discovered that it was nothing more than big brother himself.
"We're in the business of taking other peoples code and giving it away to third parties in lew of violating contracs." Said Bill Lumberg CEO of IBM, "If it wasn't for us we wouldn't be able to screw over the little guys around every turn."
IBM is expected to filter the money in $4,999 transactions to off shore accounts in the carribean to offset what seems to be an "error" in the books. "We apologize we didn't see this earlier and we're going to catch the people who didn't cover this up correctly," said Lumberg.
SD
Ignore the "p2p is theft" trolls, they're just uninformed
Microsoft has already agreed to pay Enron for a license to use these same accounting practices.
philcrissman.com.
My first real programming job, one of my first assignments was figuring out how come the quarterly sales figures didn't jibe with the monthlies and the yearlies didn't jibe with the quarterlies (sum of monthly numbers > quarter, sum of quarters > year).
Finally realized (looking at the audit tables generated by a sql trigger) that the VICE PRESIDENT OF SALES was entering a bunch of sales at the end of the month, "booking" them for the monthly report run, the "unbooking" them after the run, and eventually cancelling them. The cancels were eventually picked up on the next month's report, but the system didn't back-adjust and rerun the old month report.
This made the VP look great, although he had to get nervous because every month he had to book enough fake orders to cancel last months back charge, plus the amount he wanted to pad this month (for some asinine reason, the cancels didn't carry forward from month to month, only the previous month). BUT, the quarterly reran ALL the numbers again (it didn't just total the months), so the numbers didn't fit. Anyway, he got nice monthly bonuses.
Anyway, I had to go to my boss and show him the stuff. I was real nervous, I'd been in this position about two months and was presenting evidence of the VP engaging in fraud. The funny part? Nothing happened to him. Nothing at all (although we fixed the system). My boss said he was told it couldn't be "proven" to be him and he claimed he didn't do it. He said 'several people have my login" (smart, real smart!). Anyway, the rich get richer. I always' wondered if his bonuses got docked?
DO NOT DISTURB THE SE
We used to buy computers from Datapoint in the late 70s and early 80s. Funny thing was, they'd send us extra equipment once in a while, when we'd ask, they'd say, oh, shipping error, send it back.
They also had a track record of zillions of quarters in a row of ever increasing revenue.
One day, some rookie accountant wondered why so mnay Holiday Inn rooms were being booked and no one was staying in them, investigated, and found they were ful of extra equipment, being shipped at end of quarter to show increased revenue. Huge scandal when that hit the news, stock dropped by a factor of ten overnight.
At least that's my memory of such long ago events, and I'm not even going to stick to it if someone has a better memory.
Infuriate left and right
....and the largest in services revenue I believe, which now represents an even bigger slice (44%) of IBM's revenue than hardware (33%) does.
Source: IBM 2002 Annual Report
JoAnn
"This is big news because it goes back to the old accounting scandals that have shaken investor confidence, starting with Enron," said Burton Schlichter, senior market analyst with Lind-Waldock & Co., a division of Refco LLC.
That isn't a fair statement. The SEC's issue with IBM is qualitatively different.
Enron created a number of derivative exchanges for gas distribution and pretended they were balanced and immune. This would have been fine if they just ran the boards like the NYSE. But Enron failed to remain neutral and took positions. If anyone's bought on margin or bought a derivative, you know (I hope) that you could lose way more than you've invested. There are two reasons to buy derivatives: to hedge or to speculate. Hedging decreases total risk, for a cost. Speculation increases potential reward, but also can greatly increases risk.
I don't think IBM is operating a secret dervative trading board.
Worldcom spent large amounts in start-up costs building physical networks and did not report these expenditures as current period expenses. Instead they deferred these to future peiods where they hoped they'd make money on the new grids. You're only allowed to defer reporting costs if there's a very good chance of paying them later. It's the principle of matching expenses to work/revenue. When the telecom bubble burst recognition dawned that all these expenses could not be matched with probable revenue.
IBM hasn't been creating huge new infrastructures at vast expenses. The SEC specifically mentioned revenue.
The other bad thing Enron and Worldcom did was to grant stock options to their executives and not show as an expense the increasing value of these. Again this is an underreporting of expense issue.
It sounds like a scare tactic to influence IBM's share price and drum up some trading fees.
Esteem isn't a zero sum game
No, must resist, can't, ngahhhh . . .
WHY DID THE CHICKEN CROSS THE ROAD?
IBM Global Services (or insert your favorite consultantcy name here) consultant: Deregulation of the chicken's side of the road was threatening its dominant market position. The chicken was faced with significant challenges to create and develop the competencies required for the newly competitive market. IBM Global Services, in a partnering relationship with the client, helped the chicken by rethinking its physical distribution strategy and implementation processes. Using the Poultry Integration Model (PIM), IBM helped the chicken use its skills, methodologies, knowledge, capital, and experiences to align the chicken's people, processes and technology in support of its overall strategy within a Program Management framework. IBM convened a diverse cross-spectrum of road analysts and best chickens along with IBM consultants with deep skills in the transportation industry to engage in a two-day itinerary of meetings in order to leverage their personal knowledge capital, both tacit and explicit, and to enable them to synergize with each other in order to achieve the implicit goals of delivering and successfully architecting and implementing an enterprise-wide value framework across the continuum of poultry, cross-median processes. The meeting was held in a park-like setting, enabling and creating an impactful environment which was strategically based, industry focused, and built upon a consistent, clear, and unified market message and aligned with the chicken's mission, vision, and core values. This was conducive towards the creation of a total business integration solution. IBM Global Services helped the chicken change to become more successful.