LowIQinvestor Posted October 22, 2014 Share Posted October 22, 2014 Morningstar has some good & easy to read data on IBM's valuation/ historical financials: http://financials.morningstar.com/valuation/price-ratio.html?t=IBM®ion=usa&culture=en-US Hope they can buyback a lot of shares here. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 22, 2014 Share Posted October 22, 2014 I have done some work last year so it is a bit dated. But here it goes. http://vinodp.com/documents/investing/IBM%20Valuation%20-%20Vinod%2010-24-2013.pdf Vinod Thanks Vinod. Very rational analysis. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 22, 2014 Share Posted October 22, 2014 IBM CEO Says Boosting Margins More Important Than Sales Growth http://www.bloomberg.com/news/2014-10-22/ibm-ceo-says-boosting-margins-more-important-than-sales-growth.html?cmpid=yhoo Link to comment Share on other sites More sharing options...
loganc Posted October 22, 2014 Share Posted October 22, 2014 I have done some work last year so it is a bit dated. But here it goes. http://vinodp.com/documents/investing/IBM%20Valuation%20-%20Vinod%2010-24-2013.pdf Vinod Thanks Vinod. Very rational analysis. I appreciate the analysis being posted as well. The main question I have is whether it is really conservative to assume that maintenance capex is simply PP&E spend and software spend, given the fact that operating income has been stagnant over the past 5 years while they have spent like 15B+ on acquisitions. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 23, 2014 Share Posted October 23, 2014 The main question I have is whether it is really conservative to assume that maintenance capex is simply PP&E spend and software spend, given the fact that operating income has been stagnant over the past 5 years What numbers are you using where you see flat earnings? Their reported operating earnings increased 33% from 2009-2013. Link to comment Share on other sites More sharing options...
loganc Posted October 23, 2014 Share Posted October 23, 2014 The main question I have is whether it is really conservative to assume that maintenance capex is simply PP&E spend and software spend, given the fact that operating income has been stagnant over the past 5 years What numbers are you using where you see flat earnings? Their reported operating earnings increased 33% from 2009-2013. I am looking at my spreadsheet of data that I compiled from the annual reports. For example, I take the GAAP income statements, exclude interest expense and other (income) expense and add back D & A and intangibles. I would roughly define this as operating income, although it may not be the precise definition. My numbers are as follows: 2009 - 23.186B 2013 - 24.227B Given the guidance on the recent call, the 2014 number is going to be lower than 2013. I'll double check that my spreadsheet numbers are correct. What operating numbers are you looking at? Are you looking at per share numbers? Basically, the only reason any operating earnings per share is increasing is due to the buyback. So far as I can tell, there has been no improvement in operating margin since 2009, in contrast to the period from 2000 to 2009. Link to comment Share on other sites More sharing options...
intothebreach Posted October 23, 2014 Share Posted October 23, 2014 Ben Thomson has written a few posts on IBM at his Stratechery blog, on the other side of his $10 paywall. While I haven't read them, I thought I would point this out given the usual quality of his posts (I am in no way affiliated with him or his site, just trying to give back a little for all the value I get from CoBF). -The Disruption of IBM -On IBM's 2015 Profit Goal -IBM Sells Fabs to GlobalFoundries Link to comment Share on other sites More sharing options...
vinod1 Posted October 23, 2014 Share Posted October 23, 2014 The main question I have is whether it is really conservative to assume that maintenance capex is simply PP&E spend and software spend, given the fact that operating income has been stagnant over the past 5 years What numbers are you using where you see flat earnings? Their reported operating earnings increased 33% from 2009-2013. I am looking at my spreadsheet of data that I compiled from the annual reports. For example, I take the GAAP income statements, exclude interest expense and other (income) expense and add back D & A and intangibles. I would roughly define this as operating income, although it may not be the precise definition. My numbers are as follows: 2009 - 23.186B 2013 - 24.227B Given the guidance on the recent call, the 2014 number is going to be lower than 2013. I'll double check that my spreadsheet numbers are correct. What operating numbers are you looking at? Are you looking at per share numbers? Basically, the only reason any operating earnings per share is increasing is due to the buyback. So far as I can tell, there has been no improvement in operating margin since 2009, in contrast to the period from 2000 to 2009. Took a quick look at the data I had and noticed couple of things. 1. Retirement expenses (the actual hit to income statement) where low in 2009 by about $1 billion compared to last couple of years and compared to average of last 12 years. 2. Workforce rebalancing costs is low by about $0.35 billion in 2009 compared to recent years. I have a fussy infant to take care of so not able to look into this in detail. Vinod Link to comment Share on other sites More sharing options...
KCLarkin Posted October 23, 2014 Share Posted October 23, 2014 What operating numbers are you looking at? Are you looking at per share numbers? Basically, the only reason any operating earnings per share is increasing is due to the buyback. So far as I can tell, there has been no improvement in operating margin since 2009, in contrast to the period from 2000 to 2009. I am looking at the reported numbers (p147 of 2013 Annual Report). I see GAAP NI up 23% and non-GAAP OE up 33%. 2009, 2013 GAAP - $13.4B,$16.5B Non-GAAP - $13.4B, $18B If you look pre-tax, it might be flat. But I would be interested to see what happens when you apply Vinod's normalization assumptions because there are a bunch of lumpy items. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 23, 2014 Share Posted October 23, 2014 Ben Thomson has written a few posts on IBM at his Stratechery blog, on the other side of his $10 paywall. While I haven't read them, I thought I would point this out given the usual quality of his posts (I am in no way affiliated with him or his site, just trying to give back a little for all the value I get from CoBF). -The Disruption of IBM -On IBM's 2015 Profit Goal -IBM Sells Fabs to GlobalFoundries The article is good but he makes the assumption that the disruption of IBM is a fait accompli. He doesn't do any analysis to show why this is the case. He does make the case that Palmisano made a very large blunder in 2010. I think this criticism is fair -- IBM should have been more aggressive in cloud M&A. I think Sam was lulled into complacency. As I mentioned above, IBM knew the cloud was coming in 2002. They just didn't know when. It took a long time for enterprises to get comfortable with the cloud but when it came, it happened faster than IBM expected. It’s hard to believe, but those words were spoken just over four years ago. “You can’t do what we’re doing in a cloud.” In contrast, IBM’s executives uttered the world “cloud” 28 times during Monday’s earnings call where they announced an earnings decline and the abandonment of the aforementioned profit goal. Again, though, the goal was a symptom, not a cause, for it followed Palmisano’s belief that enterprises would always require “large-scale, custom-built tabulating solutions” that only IBM could supply. The cloud, with its consumer-esque ease-of-use – and more importantly, associated uniformity/lack of customizability – didn’t fit enterprise’s “unique model.” To put it another way, IBM was already in trouble by the time Palmisano made that goal; being competitive in the cloud in 2014 would have meant significant investment in 2010, which would have meant believing lots of businesses would ultimately do what IBM was doing “in a cloud.” And, had IBM appreciated where the world was going and committed to it, there is no way that Palmisano could have countenanced the profit goal. Symptom, not cause. From a broader perspective, it’s clear that Palmisano learned the wrong lesson from Gerstner’s turnaround. In his view IBM abandoned broadly applied product development for customized solutions; why would the wold go backwards to broadly applicable products, no matter how they were delivered? “You can’t do what we’re doing in a cloud.” Link to comment Share on other sites More sharing options...
loganc Posted October 23, 2014 Share Posted October 23, 2014 What operating numbers are you looking at? Are you looking at per share numbers? Basically, the only reason any operating earnings per share is increasing is due to the buyback. So far as I can tell, there has been no improvement in operating margin since 2009, in contrast to the period from 2000 to 2009. I am looking at the reported numbers (p147 of 2013 Annual Report). I see GAAP NI up 23% and non-GAAP OE up 33%. 2009, 2013 GAAP - $13.4B,$16.5B Non-GAAP - $13.4B, $18B If you look pre-tax, it might be flat. But I would be interested to see what happens when you apply Vinod's normalization assumptions because there are a bunch of lumpy items. It is basically flat when you look at pretax numbers with respect to the GAAP income statement. I'll look more in detail at the non-GAAP adjustments and see how this changes my calculations. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 23, 2014 Share Posted October 23, 2014 Someone mentioned how IBM should look for a large acquisition that would accelerate their transformation. I believe we could see something in the $10B range in the not too distant future. (mix of cash & stock). I think they need to get into the Internet Information Provider business in a big way. Link to comment Share on other sites More sharing options...
Guest longinvestor Posted October 23, 2014 Share Posted October 23, 2014 Someone mentioned how IBM should look for a large acquisition that would accelerate their transformation. I believe we could see something in the $10B range in the not too distant future. (mix of cash & stock). I think they need to get into the Internet Information Provider business in a big way. Could you clarify further? Possible names? Link to comment Share on other sites More sharing options...
DCG Posted October 23, 2014 Share Posted October 23, 2014 What are you referring to as Internet Information Provider? Link to comment Share on other sites More sharing options...
sleepydragon Posted October 23, 2014 Share Posted October 23, 2014 Someone mentioned how IBM should look for a large acquisition that would accelerate their transformation. I believe we could see something in the $10B range in the not too distant future. (mix of cash & stock). I think they need to get into the Internet Information Provider business in a big way. how about BBRY ;D Link to comment Share on other sites More sharing options...
sleepydragon Posted October 23, 2014 Share Posted October 23, 2014 I did some readings on IBM today. Cons: 1. They did a lot of outsourcing, and now strong USD is hurting them 2. they invested a lot of money in cloud, internet platforms, but customers are slow in building applications on top of them. And they have strong competitors: google, salesforce, hp, etc. 3. moral and culture is messed up. too many layoffs. too many managers. employees don't have clear direction. talents are leaving and nobody want to work for IBMs (except MBA graduates) Pros: - system integrators are the trend. People would rather buy from an integrator due to the fast life circle of technologies - IBM is a great brand to win business - strong balance sheet so they can offer long term financing to their clients - milking from long term contracts and stock is cheap on earning and cash flow basis. debt is low too (most debt is for client financing) Link to comment Share on other sites More sharing options...
intothebreach Posted October 23, 2014 Share Posted October 23, 2014 Forbes has an interesting article by Cringely: http://www.forbes.com/sites/robertcringely/2014/10/23/how-to-fix-ibm/ Link to comment Share on other sites More sharing options...
dwy000 Posted October 23, 2014 Share Posted October 23, 2014 Forbes has an interesting article by Cringely: http://www.forbes.com/sites/robertcringely/2014/10/23/how-to-fix-ibm/ That guy's hatred for IBM is so palpable it's impossible to take him seriously. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 24, 2014 Share Posted October 24, 2014 Forbes has an interesting article by Cringely: http://www.forbes.com/sites/robertcringely/2014/10/23/how-to-fix-ibm/ That guy's hatred for IBM is so palpable it's impossible to take him seriously. Yeah, it's a valid concern but he seems like your annoying friend who won't stop talking about how they faked the moon landing. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 24, 2014 Share Posted October 24, 2014 And they have strong competitors: google, salesforce, hp, etc. I think you need to research this a bit more. Google and Salesforce are minor competitors at best. Link to comment Share on other sites More sharing options...
compoundinglife Posted October 24, 2014 Share Posted October 24, 2014 And they have strong competitors: google, salesforce, hp, etc. I think you need to research this a bit more. Google and Salesforce are minor competitors at best. You think? I agree that Heroku's (salesforce) platform does not really pose any competition at the moment it tends to be used more by startups and less by enterprise, although Toyota and Macy's are listed as customers. Google on the other hand has the potential to be as big a competitor to IBM as Amazon/AWS is. Link to comment Share on other sites More sharing options...
Palantir Posted October 24, 2014 Share Posted October 24, 2014 Why Google though? I just don't see how this fits into their business model, and I don't see them having the enterprise channel to push through a CRM product...startups maybe. I think IBM's main competitor in this space has to be MSFT. Link to comment Share on other sites More sharing options...
Guest longinvestor Posted October 24, 2014 Share Posted October 24, 2014 Why Google though? I just don't see how this fits into their business model, and I don't see them having the enterprise channel to push through a CRM product...startups maybe. I think IBM's main competitor in this space has to be MSFT. Agree. MSFT's success in the cloud has to be a potential threat to not just IBM but to all enterprise software/ service providers. Link to comment Share on other sites More sharing options...
oddballstocks Posted October 24, 2014 Share Posted October 24, 2014 And they have strong competitors: google, salesforce, hp, etc. I think you need to research this a bit more. Google and Salesforce are minor competitors at best. You think? I agree that Heroku's (salesforce) platform does not really pose any competition at the moment it tends to be used more by startups and less by enterprise, although Toyota and Macy's are listed as customers. Google on the other hand has the potential to be as big a competitor to IBM as Amazon/AWS is. IBM's cloud offering is small. The bread and butter of IBM is their services supporting things like MessageBroker and Websphere. The big iron applications that they sell everywhere. IBM's software is the glue at many large companies. They are selling integration pieces that other things run on. I don't see Salesforce as a competitor. IBM has offerings to work with them (CastIron). So say you have Salesforce, some old database, a ton of smaller systems and then a web front end. IBM will happily sell you CastIron, MessageBroker and Websphere. That offering ties together the systems and provides a service backbone for a company. Systems like this are huge implementations and once installed aren't removed or changed easily. One area I'd watch is to see if IBM starts to move into the PaaS space. They would be a great fit there. Another point worth noting. IBM's software is not simple, or easy to use. I've worked with a company that has installed a number of IBM products. There is a department of specialists to work on this stuff. If I had to guess off-hand I'd say there are maybe 20-30 people whose only job is to configure and maintain two IBM products. It's not uncommon for them to hire IBM services to supplement this group. Link to comment Share on other sites More sharing options...
compoundinglife Posted October 24, 2014 Share Posted October 24, 2014 Why Google though? I just don't see how this fits into their business model, and I don't see them having the enterprise channel to push through a CRM product...startups maybe. I think IBM's main competitor in this space has to be MSFT. I was not looking at Google as a competitor in the enterprise CRM space. WRT to Google I see compute engine and friends as a direct competitor to Softlayer for infrastructure as service. If I were interested in IAAS today I would go look at AWS, Google compute engine and Azure. Probably in tht order. Softlayer's schtick is offering more transparency into the cloud and real hardware if you need it for your work loads which I think will attract some enterprise customers that are not willing to deal with the more utility like model that AWS and Google have and are willing to pay more $. I guess I would not rule google out as a large competitor with them in that space. Link to comment Share on other sites More sharing options...
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