ItsAValueTrap Posted October 12, 2012 Share Posted October 12, 2012 Ok I am not an IT guy and I don't know why Warren Buffett bought such a huge stake in it. Berkshires 13-F filing shows $13B in IBM versus a total portfolio of $74B (~18%). Compared to Berkshire's market cap of around $220B it doesn't look like that concentrated of a position though. Buffett talks IBM in this interview transcript: http://www.cnbc.com/id/45290263/CNBC_Transcript_Warren_Buffett_Explains_Why_He_Bought_10_7B_of_IBM_Stock_Part_5 From what I understand: -Warren sees IBM's reputation as a bit of a moat. This might be comparable to how Goldman Sach's reputation helps it win business and how large ad agencies have reputations that help them win business. -In the IT business, CIOs want to go with vendors who will deliver and stand by their product. So the established players have a minor moat against new entrants. -IBM's previous managements have been really really good. They are good both on the operational side and on the financial side (e.g. share buybacks). -It looks like a cheap growth stock. Stuff that may not matter (and points that Warren didn't raise): -IBM's long history and its reputation allows it to raise debt cheaply. It has sold a 100-year bond. -I guess Warren doesn't talk about this, but their mainframe and CPU business will probably eventually die off in the face of Intel. Just my opinion though. -IBM is transitioning into a software business. I have no clue what their software does however. Link to comment Share on other sites More sharing options...
benchmark Posted October 13, 2012 Share Posted October 13, 2012 Ok I am not an IT guy and I don't know why Warren Buffett bought such a huge stake in it. Berkshires 13-F filing shows $13B in IBM versus a total portfolio of $74B (~18%). Compared to Berkshire's market cap of around $220B it doesn't look like that concentrated of a position though. Buffett talks IBM in this interview transcript: http://www.cnbc.com/id/45290263/CNBC_Transcript_Warren_Buffett_Explains_Why_He_Bought_10_7B_of_IBM_Stock_Part_5 From what I understand: -Warren sees IBM's reputation as a bit of a moat. This might be comparable to how Goldman Sach's reputation helps it win business and how large ad agencies have reputations that help them win business. -In the IT business, CIOs want to go with vendors who will deliver and stand by their product. So the established players have a minor moat against new entrants. -IBM's previous managements have been really really good. They are good both on the operational side and on the financial side (e.g. share buybacks). -It looks like a cheap growth stock. Stuff that may not matter (and points that Warren didn't raise): -IBM's long history and its reputation allows it to raise debt cheaply. It has sold a 100-year bond. -I guess Warren doesn't talk about this, but their mainframe and CPU business will probably eventually die off in the face of Intel. Just my opinion though. -IBM is transitioning into a software business. I have no clue what their software does however. I used to work for IBM, and I don't approve Warren's buy :) Seriously, the growth that IBM has shown are mostly via cutbacks (on employee benefits, outsourcing, etc) and buybacks. The top line hasn't grown that much at all, employee morale isn't very high. The one thing that they are doing right is focusing on software and buying smaller companies and use IBM's brand/sales/marketing to make more out of acquisitions. But I still don't think that they can sustain that strategy for long. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted October 13, 2012 Author Share Posted October 13, 2012 Yeah businessinsider.com has been running some pretty brutal articles on how IBM is working its employees. While BI may be sensationalist sometimes, you can see what IBMers are saying in the comments. http://www.businessinsider.com/ibm-to-freeze-salaries-of-some-employees-2012-6 glassdoor.com is another site to guage morale. Link to comment Share on other sites More sharing options...
Palantir Posted October 13, 2012 Share Posted October 13, 2012 Interesting articles... Link to comment Share on other sites More sharing options...
Guest hellsten Posted October 13, 2012 Share Posted October 13, 2012 Yeah businessinsider.com has been running some pretty brutal articles on how IBM is working its employees. While BI may be sensationalist sometimes, you can see what IBMers are saying in the comments. http://www.businessinsider.com/ibm-to-freeze-salaries-of-some-employees-2012-6 glassdoor.com is another site to guage morale. Thanks. The comments are actually more interesting than the article: Tech consulting is the biggest scam business in the world. It's right up there with Finance. Maybe that's why Warren likes the company ;D He understands what Arthur C. Clarke wrote: Any sufficiently advanced technology is indistinguishable from magic. IBM's products are magic to many customers. To others they are something very different :-X Link to comment Share on other sites More sharing options...
Green King Posted October 13, 2012 Share Posted October 13, 2012 Any sufficiently advanced technology is indistinguishable from magic. Where did you get this one ??? Link to comment Share on other sites More sharing options...
Liberty Posted October 13, 2012 Share Posted October 13, 2012 Any sufficiently advanced technology is indistinguishable from magic. Where did you get this one ??? http://en.wikipedia.org/wiki/Clarke's_three_laws Link to comment Share on other sites More sharing options...
Green King Posted October 13, 2012 Share Posted October 13, 2012 Any sufficiently advanced technology is indistinguishable from magic. Where did you get this one ??? http://en.wikipedia.org/wiki/Clarke's_three_laws Thanks Link to comment Share on other sites More sharing options...
tnp20 Posted October 14, 2012 Share Posted October 14, 2012 As an ex-IBMer, I also support Bench's comments. I left a few years ago and still have diminishing circle of friends still at IBM...the good ones are leaving one by one. Bottom Line benefits: IBM is taking an axe to the costs...retirement, healthcare plans, benefits, salaries, bonuses, real estate - chop chop chop....there probably isn't much to chop in USA and Europe after 5+ years of heavy chopping. Top Line benefitsL Top line is grown through acquisition of mostly mid/large software companies. - once the company is acquired, their sales force and developers are essentially pushed out. They are hiring though in Asia , Mexico and Brazil...they are banking on sales growth in Emerging markets. - thats where they are doing most of the hiring. I recently had lunch with one of my former managers at IBM. A top notch guy, he is leaving IBM after 24 years...he was Blue to the bone and to see him leave implies things must be really bad. IBM is certainly repositioning for growth in Asia/Emerging markets - its significantly decreasing its footprint in USA ans Europe. - not clear if this shift in balance will produce the results...... There is some great entrenched IBM technology out there for sure......but not sure I would buy IBM at this lofty price....closer to $100-120 might be ok but not here. IBM still has great research. The labs produce really cutting edge stuff. They are making a big push for cloud just like everyone else. You buy IBM for the entrenched technology position, not for growth. Link to comment Share on other sites More sharing options...
Shawn Posted October 15, 2012 Share Posted October 15, 2012 I remember Warren Buffett said once that he was 85% Graham and 15% Phil Fisher. Whenever I seen these purchases like Wells Fargo, Coca Cola, American Express or in this case IBM I can see how some of these purchases are in-line with Fisher's philosophy. IBM has some very high ROE.... I would buy it too lol. Link to comment Share on other sites More sharing options...
Palantir Posted January 3, 2013 Share Posted January 3, 2013 Not much interest in this puppy? It seems to me that PE for this stock has been coming down over the past year and it has been pretty flat. I don't think this is quite a great value yet, but if it stays flat over the next few mos....and the firm keeps buying back stock this could be interesting again. Link to comment Share on other sites More sharing options...
ericd1 Posted January 4, 2013 Share Posted January 4, 2013 I've been following IBM for several years and bought before Warren...lol Big Blue isn't what it was 10-15 years ago. They have made a real transformation from software and hardware to service. Yes there's still software and hardware, but the reoccurring service revenues are what piqued my interest. They have a goal for $20/shr earnings by 2015 and are on track to make it. Cost cutting, lots of small acquisitions and share buy backs seem to be the gameplan and it appears to be working. Pick your multiple x 20 and you can see where they will likely be by 2015. I'm using 14x and looking for $280. Compared to other techs I sleep well with this one. I own shares. Link to comment Share on other sites More sharing options...
Charlie Posted January 23, 2013 Share Posted January 23, 2013 Good results from IBM: http://finance.yahoo.com/news/ibm-reports-2012-fourth-quarter-210800326.html Cheers! Link to comment Share on other sites More sharing options...
plato1976 Posted March 31, 2013 Share Posted March 31, 2013 Not sure if their North America Sales will decline at some point ... that will be really bad As an ex-IBMer, I also support Bench's comments. I left a few years ago and still have diminishing circle of friends still at IBM...the good ones are leaving one by one. Bottom Line benefits: IBM is taking an axe to the costs...retirement, healthcare plans, benefits, salaries, bonuses, real estate - chop chop chop....there probably isn't much to chop in USA and Europe after 5+ years of heavy chopping. Top Line benefitsL Top line is grown through acquisition of mostly mid/large software companies. - once the company is acquired, their sales force and developers are essentially pushed out. They are hiring though in Asia , Mexico and Brazil...they are banking on sales growth in Emerging markets. - thats where they are doing most of the hiring. I recently had lunch with one of my former managers at IBM. A top notch guy, he is leaving IBM after 24 years...he was Blue to the bone and to see him leave implies things must be really bad. IBM is certainly repositioning for growth in Asia/Emerging markets - its significantly decreasing its footprint in USA ans Europe. - not clear if this shift in balance will produce the results...... There is some great entrenched IBM technology out there for sure......but not sure I would buy IBM at this lofty price....closer to $100-120 might be ok but not here. IBM still has great research. The labs produce really cutting edge stuff. They are making a big push for cloud just like everyone else. You buy IBM for the entrenched technology position, not for growth. Link to comment Share on other sites More sharing options...
Palantir Posted April 2, 2013 Share Posted April 2, 2013 What are you guys estimating as IV for this guy? I feel it's roughly trading at IV currently, may be worth a look if it hasn't moved out of this range in a year. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted April 3, 2013 Author Share Posted April 3, 2013 Just finishing Lou Gernster's book on IBM's turnaround- "Who Says Elephants Can't Dance?" He states that IBM's *only* competitive advantage is its ability to integrate different products into a working solution, and that IBM is/was ahead of its competitors in that regard. Link to comment Share on other sites More sharing options...
plato1976 Posted April 3, 2013 Share Posted April 3, 2013 A very general question before I dive into a research. I think the IT spending will only go up as a percentage of the economy over time, even in developed country. So I am wondering why IBM top line is flat or slightly declining in north america. If the pie of the IT spending for enterprise is growing and IBM is getting a smaller piece over time - I am concerned, unless they are intentionally getting out of some subsectors that have inferior margin (and who's getting bigger piece over time in the developed country ???). Even so, scale does matter in this cloud era Just finishing Lou Gernster's book on IBM's turnaround- "Who Says Elephants Can't Dance?" He states that IBM's *only* competitive advantage is its ability to integrate different products into a working solution, and that IBM is/was ahead of its competitors in that regard. Link to comment Share on other sites More sharing options...
Guest Dazel Posted April 3, 2013 Share Posted April 3, 2013 Buffett bought at 10 times cash flow...they grow double digits every year (cash) have returned $150b cash since 2000... They are in a dominate position for the next decade just spent 15b on the next wave...cloud, apache etc...50% gross margins...15% margin all in. They are sticky and cannot be removed the are saying they will take data analytics into a $20 business over the next 10 years...they sell what does not fit do not care about sales cash counts....brilliant company and a another very good investment for Mr. Buffett over the longer term...like 15% bond for him...huge. Dazel. Link to comment Share on other sites More sharing options...
Guest valueInv Posted April 3, 2013 Share Posted April 3, 2013 IBM has been an awesome investment for me. I bought in the 70s. and still hold it. This is one of those "hold forever" companies. I still haven't figured out the impact the cloud will have on them. That may change things dramatically. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted April 3, 2013 Author Share Posted April 3, 2013 I'm thinking that IBM is not a business I really understand. Unlike Buffett, I did not go talk to various CIOs. It's hard for me to understand IT in large organizations/business. That information is not on the Internet. (Whereas IT for small businesses is something that I can understand.) It seems like the best way to play IBM is to simply buy Berkshire Hathaway, since Berkshire often sells below intrinsic value. Link to comment Share on other sites More sharing options...
Palantir Posted April 3, 2013 Share Posted April 3, 2013 I don't think you need to go into great detail to understand IBM's businesses. The keyword here is "switching costs". Just IMO. Link to comment Share on other sites More sharing options...
Guest hellsten Posted April 3, 2013 Share Posted April 3, 2013 I don't think you need to go into great detail to understand IBM's businesses. The keyword here is "switching costs". Just IMO. Yes, it's quite simple to understand. This is what most enterprise IT managers ask themselves: IBM, or Microsoft… Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted April 3, 2013 Author Share Posted April 3, 2013 switching costs You should read Lou Gerstner's book. IBM almost died at one point in its history. And he basically tells you what IBM's only competitive advantage is. (It's buried in the book though in one of the appendices.) Link to comment Share on other sites More sharing options...
Guest hellsten Posted April 3, 2013 Share Posted April 3, 2013 He states that IBM's *only* competitive advantage is its ability to integrate different products into a working solution, and that IBM is/was ahead of its competitors in that regard. Lou might have been right in 2003 when the book was published. Today I would say Microsoft is in the lead; at least when you look at the most common products bought by corporations of which SharePoint is one. Microsoft's marketing material has the answer ;) http://download.microsoft.com/download/0/5/F/05FF69ED-6F8F-4357-863B-12E27D6F1115/Comparing%20SharePoint%20and%20IBM%20in%20Enterprise%20Collaboration.pdf To match SharePoint, customers are forced to purchase and integrate a variety of IBM point-solutions. The vast range of options include WebSphere Portal, Lotus Notes and Domino, Quickr, WebSphere Dashboard Framework, Alphabox, IBM Workplace Forms, Content Manager, FileNet, Lotus WCM, Sametime, Connections, Omnifind, InfoSphere, and IBM Content Analyzer. Furthermore, even within many of these individual products there are multiple versions, editions and deployment alternatives. (e.g., Quickr’s Domino version and Websphere version; Omnifind’s Enterprise Edition, Enterprise Starter Edition, Discovery Edition, Yahoo! Edition, etc.) Many of these solutions have features that overlap (e.g., Connections, Quickr), implement different content repositories (e.g., Domino, Content Manager, FileNet), were killed or suffer from lack of long-term commitment from IBM (e.g., Domino Document Manager, Quickplace, Workplace) . IMO, IBM doesn't have a very good product portfolio, but this is not necessarily a bad thing for a company that sells other services… Link to comment Share on other sites More sharing options...
Guest Dazel Posted April 3, 2013 Share Posted April 3, 2013 Buffett would use the company extensively...and he mentioned this when he talked about investing in them he compared them to auditors as basically you might not like what they say but you have no choice and they charge you whatever they want... basically you cannot switch from IBM as with other large companies and governments...without tremendous costs...so you don't... I would speculate that Buffett is also extremely impressed with their data analytics business..can you imagine the information he gets from his business using this data for investing. He could basically find anything he wants about anything...this creates tremendous value and advantage for him...oh ya Gates might also know something we don't. Dazel. Link to comment Share on other sites More sharing options...
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