IBM - International Business Machines

[Charlie]

Buffett once said: "Capital Allocation is terrible important."

 

and he also said that IBM was probably the best large company in capital allocation in recent years.  :)

[Palantir]

Indeed they have a great capital return program, but that doesn't really explain away their tepid growth.

[Guest wellmont]

“Over the last decade, we have divested $15 billion worth of revenue,” Rometty said. “If we had not, we would be a larger company, but we would also be a lesser-margin company, and we would have capabilities that our clients would be less interested in.”

 

perhaps an investment in a company with an articulated growth strategy may be more your cup of tea?

https://www.google.com/finance?q=hpq&ei=AFgqUrCZHOauiAKnXg

[Palantir]

You could have made your point (very reasonable one too) without the backhanded comments, but fair enough.

[no_free_lunch]

They have actually been growing nicely, albeit slowly, over the last decade.  Even in absolute terms their net income has doubled from 04/05 levels.  With share buybacks, net income per share is roughly tripled.  Their have also paid out a small dividend on the way.

 

As wellmont said, they are reducing their low margin businesses and replacing the revenue with higher margin businesses. 

 

Recently, they have stalled out though.  That is the risk.  This is why I am going with LEAPS, either this is a permanent trend and I want to stay clear or it is a blip related to the economic slowdown and when things pick up so goes the stock.

[fareastwarriors]

http://online.wsj.com/article/SB10001424127887323893004579059393251153348.html?mod=WSJ_hpp_LEFTTopStories

 

IBM to Move Retirees Off Health Plan

 

Big Blue's Health-Exchange Move Ends Once-Common Benefit

 

 

 

International Business Machines Corp. IBM -0.61% plans to move about 110,000 retirees off its company-sponsored health plan and instead give them a payment to buy coverage on a health-insurance exchange, in a sign that even big, well-capitalized employers aren't likely to keep providing the once-common benefits as medical costs continue to rise.

 

The move, which will affect all IBM retirees once they become eligible for Medicare, will relieve the technology company of the responsibility of managing retirement health-care benefits. IBM said the growing cost of care makes its current plan unsustainable without big premium increases.

[tombgrt]

They have actually been growing nicely, albeit slowly, over the last decade.  Even in absolute terms their net income has doubled from 04/05 levels.  With share buybacks, net income per share is roughly tripled.  Their have also paid out a small dividend on the way.

 

As wellmont said, they are reducing their low margin businesses and replacing the revenue with higher margin businesses. 

 

Recently, they have stalled out though.  That is the risk.  This is why I am going with LEAPS, either this is a permanent trend and I want to stay clear or it is a blip related to the economic slowdown and when things pick up so goes the stock.

 

Even if they don't have any growth at all in revenues,  this company is worth far more than PE of 10 when they return 75%+ of CF to shareholders with the bulk of that going to cheaply bought back shares increasing earnings at a fast pace.

[Guest Dazel]

 

 

Buffett does not care about revenue...he cares about growth in cashflow per share...he is buying a 17 to 20% bond in IBM...the magic of buybacks take time to manifest...but they can only happen in a steady to growing cashflow environment.

 

Dazel.

[Guest valueInv]

Some of the challenges facing IBM:

 

http://www.informationweek.com/cloud-computing/infrastructure/ibms-cloud-business-ex-employee-divulges/240159982?pgno=1

 

Like I've said before, the Great Disruption.

[kevin4u2]

Owners of IBM have enjoyed 5.6% revenue per share growth and 14.9% EPS growth over the time frame you mention.  Margins have been up huge in the last five years.  Growth for the sake of growth makes me yawn. 

 

Why don't you use per share metrics? 

 

 

 

Even if you remove the divestiture.

 

Revenue:

98,786 (2007)

...

104,507 (2012)

 

= 1.1% yoy growth over the past five years.....

= 1.9% since 2005 after jettisoning their PC division.

 

So I correct my self, "really slow growing" rather than "no growth". 1.1% yoy growth is pretty low still.

[Palantir]

I am not looking at per share metrics because I want to isolate the performance of the underlying business, it is clear that buy backs will juice growth but it tells you nothing about the underlying biz.

[Sunrider]

I should say that, in fairness, ACN is similarly large and in fact will often do part of the implementation work on IBM projects. Main difference is that they don't own any technology assets (software, hardware, solutions) as IBM does - so they're happy to implement IBM, Oracle, SAP or anything else under the sun that gets them revenue.

 

As somebody whose partner has worked there and as somebody who almost accepted a position as a partner in the GBS practice I'll happily tell you:

 

They are inefficient as hell. The organisation is set up as an n-dimensional matrix structure that even the people that tried to hire me could never explain adequately. Partners are, of course, incentivised on sales but similarly have to give up a lot of their "sales" to other parts of the business whilst simultaneously being able to take credit for other part of the organisation's sales. A complete mess compared to, say, an Accenture (who on many IT projects will kick the socks off IBM). IBM gets hired because it's so big that if the customer makes enough noise they know that IBM can eventually be bullied into doing the right thing and delivering (if they didn't get around to that due to infighting/lack of coordination during the initial work).

 

So - their labs are allegedly amazing and there's really cool and relevant stuff done there (forget Watson, I mean things that big IT spending businesses actually care about at this stage) ... but again IBM struggles to bring a lot of this out of the labs .... in essence it's a big sales organisation but probably one of the worst setup ones.

 

... just my $0.02

 

Great info. I'm basically comparing IBM to ACN, and am leaning towards ACN right now.

[Charlie]

not to forget the obvious IBM is one of the most valueable timetested brands in this world,

which gives you an additional margin of safety and more upside potential.  :)

 

http://www.interbrand.com/en/knowledge/branding-studies.aspx

[no_free_lunch]

Sunrider,

 

My understanding is that IBM will implement non-IBM technologies as well, especially on the edges.  If they can get a contract and the DB is oracle they might push DB2 a bit (or not) but they won't give up the contract because you are using a different technology.  They just don't have much choice in this regard.

[thefatbaboon]

not to forget the obvious IBM is one of the most valueable timetested brands in this world,

which gives you an additional margin of safety and more upside potential.  :)

 

http://www.interbrand.com/en/knowledge/branding-studies.aspx

 

Agree with you...but got to laugh at a greatest 100 brand list that doesn't include Marlboro  :o

[thefatbaboon]

Has anyone else found IBM's last two 10Qs difficult to follow?  I'm inclined to give them the benefit of the doubt and wait till things (hopefully) smooth out through the rest of the year. But still, it's taken me weeks to try and understand whats happening: gaap tax down, cash tax up, the workforce rebalancing, the cash flow effects of some prepaid asset build...I'm still not comfortable that I've found a good "normalized" view of things and I'm still not sure I've understood why cash flow from operations fell as much as it did.

[no_free_lunch]

Beyond a certain level I find the 10Q's are near impossible to follow!  I don't know I tend to fall back on the whole approximately right than precisely wrong thing but I am sure that is not what you want to hear.

 

I do know that the latest quarter was heavily impacted by workforce restructuring.  That caused SG&A to jack up by about $1B and accounts for the bulk of the difference.

 

In the second quarter of 2013, the company reported $24.9 billion in revenue and diluted earnings per share of $2.91 as reported and $3.22 on an operating (non-GAAP) basis. In April 2013, the company indicated that it expected to take most of its workforce rebalancing actions for the year in the second quarter as opposed to the prior year when these charges were distributed across the quarters. These actions resulted in a charge to pre-tax income of $1,011 million in the second quarter of 2013 compared to $155 million in the second quarter of 2012. Excluding the workforce rebalancing charges in both years, second quarter 2013 operating (non-GAAP) diluted earnings per share was $3.91, an increase of 8.3 percent compared to the second quarter of 2012. The company generated $3.2 billion in cash from operations and $2.7 billion in free cash flow in the second quarter driving shareholder returns of $4.6 billion in gross common stock repurchases and dividends.

 

Also related to normalized performance:

 

Based on its performance in the second quarter, solid prospects for its growth initiatives, tough decisions on spending and potential tax settlements, the company increased its expectation for full year operating (non-GAAP) earnings per share, excluding the second quarter workforce rebalancing charge, by $0.20 to at least $16.90. As a result, the company has updated its “all in” view for the full year, expecting GAAP earnings of at least $15.08 and operating (non-GAAP) earnings of at least $16.25, with the net impact of $0.45 driven by the elongated discussions related to the larger divestiture project, partially offset by the improved operational performance.

 

Another thing you can look at is the analyst forecasts.  You obviously need to be skeptical of these but they are at least generally right if things go according to plan.  You just need to figure out how likely IBM's plan is.

 

http://www.nasdaq.com/symbol/ibm/earnings-forecast

[fareastwarriors]

http://www.bloomberg.com/news/2013-09-10/ibm-sells-customer-care-unit-to-synnex-for-505-million.html

 

International Business Machines Corp. (IBM), the world’s largest computer-services provider, agreed to sell its customer-care outsourcing business to Synnex Corp. (SNX) for $505 million to focus on more profitable investments.

 

Synnex will pay $430 million in cash and $75 million in stock, giving IBM a stake in Synnex, the companies said in statements yesterday. The unit had $1.3 billion in 2012 sales, accounting for more than 1 percent of IBM’s revenue. Synnex shares jumped to a record intraday price.

 

 

[fareastwarriors]

http://seekingalpha.com/article/1717602-ibm-shares-lag-just-like-buffett-wanted

 

 

IBM Shares Lag, Just Like Buffett Wanted

[phil_Buffett]

hopefully they are buying back a lot of stock the last weeks as the stock is down at the 52 week low.

[Yours Truly]

How long is IBM going to be able to achieve that goal of $20 earnings market by 2015?  Based on prior track record and Buffett's confidence, probably likely?

 

And would 2016 LEAPS make a decent bet on this fact?

[phil_Buffett]

i think the Goal is defintely likely. they can achieve it. with modest organic earnings growth and with share buybacks and a stock that is down at the 52 week low. the buy the Shares cheap. like buffett said when the stock is down and ibm buys back a ton of stock he owns more in a few years.

 

 

[fareastwarriors]

3Q #s

 

http://www.ibm.com/investor/events/3q13.phtml

 

 

IBM Earnings: $3.99 a share, $23.72 billion revenue vs. expectations of $3.96 EPS, $24.75 billion revenue

[Guest valueInv]

3Q #s

 

http://www.ibm.com/investor/events/3q13.phtml

 

 

IBM Earnings: $3.99 a share, $23.72 billion revenue vs. expectations of $3.96 EPS, $24.75 billion revenue

 

Stock down almost 6% after-hours. Sweet!

[tombgrt]

Very sweet indeed!! I'll be eyeing the 2016 leaps strike 190-210. I expect some additional tax loss selling. Fingers crossed! It's not every day that you can buy a major Buffett pick at his buying price 2 years after the facts. (Not that this fact makes this a certain win... I just have some very basic assumptions out on what IV can likely be by 2016 and 2018 and how I could get enough upside potential while keeping a big pile of cash. Get us some tax loss selling à la BAC in 2011 and you get yourself a very nice potential entry.)