IBM: Help Wanted

In the wake of a few high-profile firings at rival Hewlett-Packard (NYSE: HPQ  ) , a weaker outlook at Cisco (Nasdaq: CSCO  ) , ongoing problems at Intel (Nasdaq: INTC  ) , and a general malaise enveloping the entire tech sector, IBM (NYSE: IBM  ) yesterday announced it would add 18,000 workers before the end of the year, and that's not including acquisitions.

This is the third time IBM has raised its hiring expectations this year. Management now says its total head count should reach 330,000, the company's highest total since 1991, two years before it hired Lou Gerstner as CEO to institute a turnaround. Does that mean the firm is headed for the same whitewater Cisco and others have faced? Hardly.

As Fool Bill Mann has pointed out, Cisco is contending with rising inventories and a glut of hardware that hasn't yet been absorbed by customers who loaded up during the dot-com days. IBM doesn't face this problem. Just look at Big Blue's most recent quarterly results. Inventories and receivables were down from the end of 2003, and services made up nearly 50% of revenues.

That's right; IBM is increasingly making its money off the expertise of its people instead of from products that need to be boxed up and shipped somewhere. No wonder the firm is hiring.

One-third of the new staff will likely be based in the U.S., while the rest will beef up IBM's overseas workforce, which has recently benefited from outsourcing. Seedy as that may sound, it's important to remember that outsourcing is a complex issue. Indeed, according to a report, IBM claims that outsourcing and new internal training programs have allowed the firm to trim layoff estimates while bolstering the workforce in other areas.

The bottom line for investors is simple: Not all tech companies are created equal, and not all tech investments are bad. The business model counts for a lot, and IBM seems to be hitting its stride at the right time. Unfortunately, the stock is no bargain. Its dividend trails the market average, and it trades for 13 times IBM's free cash flow when compared with enterprise value. IBM has grown free cash flow roughly 5% annually over the past three years. Still, the lesson is clear. While others might be due for a beating, tech companies providing vital services -- including IBM, (Nasdaq: AMZN  ) , and eBay (Nasdaq: EBAY  ) -- are on solid ground.

eBay and Amazon are bothMotley Fool Stock Advisor recommendations. Subscribe today without risk for six months.

Fool contributor Tim Beyers owns no interest in any of the companies mentioned, and you can view his Fool profile here.

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