IBM - International Business Machines

[Palantir]

Interesting though that nobody thought to blame Palmisano back then, rather rhis board was full of praise.

[BPCAP]

 

 

Interesting read, although for supposedly such a rare short on their behalf, it was disappointing to see their advice is to short for just $8 upside. For all the doom and gloom, they still think it'll trade at $110? 

[AzCactus]

 

 

Wonder what Warren would say. 

[theasiareport]

 

 

Wonder what Warren would say.

 

That you should do your own research and not outsource it.

[wachtwoord]

 

 

Wonder what Warren would say.

 

That you should do your own research and not outsource it.

 

In October 2015 they the same sources valued it at $205 instead of $110

[AzCactus]

 

 

Wonder what Warren would say.

 

That you should do your own research and not outsource it.

 

Perhaps he would not have purchased IBM initially if he had outsourced his research.  My question would be how does a company that he had known about his whole life suddenly get into his circle of competence at 81. 

[Mephistopheles]

 

 

Wonder what Warren would say.

 

That you should do your own research and not outsource it.

 

Perhaps he would not have purchased IBM initially if he had outsourced his research.  My question would be how does a company that he had known about his whole life suddenly get into his circle of competence at 81.

 

Because knowledge is cumulative. And the company has transformed over time so it's not the same company.

 

Or because it was in his circle of competence for a while but he just didn't realize until 81.

[scorpioncapital]

He's a patient guy. I wouldn't put it past him to have a stock on a watchlist for decades or to sell something for merely a modest decrease in FCF unless it was really going downhill fast or losing money like the textile mill which was shut down in 1985. IBM FCF is down something like 10-15% in 5 years? Even at that rate, in 10-12 years he'd get all his money back and the rest is gravy. I'd watch for the rate of change in FCF, not the actual decrease but how fast it's dropping.

[AzCactus]

He's a patient guy. I wouldn't put it past him to have a stock on a watchlist for decades or to sell something for merely a modest decrease in FCF unless it was really going downhill fast or losing money like the textile mill which was shut down in 1985. IBM FCF is down something like 10-15% in 5 years? Even at that rate, in 10-12 years he'd get all his money back and the rest is gravy. I'd watch for the rate of change in FCF, not the actual decrease but how fast it's dropping.

 

You may end up being right in terms of IBM.  My issue with Buffett/IBM is something like this: Buffett says that when things go down in price to by more if the thesis is intact.  Well after reading 50 years worth of annual reports one would hope that his thesis was solid.  I'm just confused that he built the position up to about 58 million shares by the third quarter of 2011.  In 2015 it doesn't look like he added much at somewhat lower prices so maybe he just added hand over fist in the fourth quarter. 

[vinod1]

He's a patient guy. I wouldn't put it past him to have a stock on a watchlist for decades or to sell something for merely a modest decrease in FCF unless it was really going downhill fast or losing money like the textile mill which was shut down in 1985. IBM FCF is down something like 10-15% in 5 years? Even at that rate, in 10-12 years he'd get all his money back and the rest is gravy. I'd watch for the rate of change in FCF, not the actual decrease but how fast it's dropping.

 

You may end up being right in terms of IBM.  My issue with Buffett/IBM is something like this: Buffett says that when things go down in price to by more if the thesis is intact.  Well after reading 50 years worth of annual reports one would hope that his thesis was solid.  I'm just confused that he built the position up to about 58 million shares by the third quarter of 2011.  In 2015 it doesn't look like he added much at somewhat lower prices so maybe he just added hand over fist in the fourth quarter.

 

IBM business has likely under-performed his original expectations so his IV estimates could have gone down as well. So Price/IV might not have changed all that much.

 

Vinod

[Investmentacct]

 

 

Wonder what Warren would say.

 

This may show reason why one guy ends up with billions to invest long and  other guy writes short thesis.

FWIW, we have purchased recently  agreement to buy business mapping software from IBM. Two of IBM software offering are #1 and #2 in that category;  for huge volume processing and availability of standards.

 

https://www.youtube.com/watch?v=fJGkUSJBrXo

 

[valueinvesting101]

 

 

 

It is strange to see this research piece is focusing only on AWS, Google and MSFT Azure as possible competitors with IBM. I think Indian outsourcing companies are also competing with IBM Global outsourcing business which is around 50+% of its profit.

 

Collective market cap of TCS, Infosys, Cognizant and Wipro is $154.2 billion and their last TTM net profit was $8.83 billion. IBM definitely has overlap with these companies but they seem to be trading at higher multiple than IBM collectively.

 

Now, it could be argued that they have higher margin than IBM in outsourcing business but IBM also has higher margin than Accenture which is trading at 18-19 times earning at about half the dividend yield of IBM. Accenture also have more similarities with IBM than say AWS. Accenture net profit is around $3.05 billion TTM but its market cap is around $62.3 billion even after recent correction from around $105 to $95.

 

 

Even cloud based platforms keep disrupting IBM, it also provides IT implementation for other companies based on platforms such as SAP. Author of the report seems to be missing that point.

 

 

 

 

 

[Eye4Valu]

WEB said or wrote somewhere that he hopes IBM's price languishes for next few years while they buy back shares. I think he is A-OK waiting while they attempt their transition and continue to buy back shares. So easy to criticize WEB's decisions, so impossible to come anywhere near his track record. Hold onto IBM shares for 20 years and get back to us as to WEB's decision.

[AzCactus]

WEB said or wrote somewhere that he hopes IBM's price languishes for next few years while they buy back shares. I think he is A-OK waiting while they attempt their transition and continue to buy back shares. So easy to criticize WEB's decisions, so impossible to come anywhere near his track record. Hold onto IBM shares for 20 years and get back to us as to WEB's decision.

 

I'm pretty sure Buffett also wrote (almost verbatim) that turnarounds seldom turn.  I'm not saying that this won't eventually work.  I would say that in more than one way Buffett appears to be stepping outside or near the boundaries of  his circle of competence.  For one this is a tech company and secondly this is a turnaround.  By the way attempting a transition doesn't seem like the typical Buffettesque investment. 

[LongTermView]

In October 2015 they the same sources valued it at $205 instead of $110

 

Yeah, that's interesting.  Their February 2016 issue cites a lot of information that was out there before their October 2015 issue.  The large customer losses from 2009 to 2013 are examples.

[vinod1]

WEB said or wrote somewhere that he hopes IBM's price languishes for next few years while they buy back shares. I think he is A-OK waiting while they attempt their transition and continue to buy back shares. So easy to criticize WEB's decisions, so impossible to come anywhere near his track record. Hold onto IBM shares for 20 years and get back to us as to WEB's decision.

 

I'm pretty sure Buffett also wrote (almost verbatim) that turnarounds seldom turn.  I'm not saying that this won't eventually work.  I would say that in more than one way Buffett appears to be stepping outside or near the boundaries of  his circle of competence.  For one this is a tech company and secondly this is a turnaround.  By the way attempting a transition doesn't seem like the typical Buffettesque investment.

 

For a company reporting earnings like this (the numbers are in millions of $):

 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$9,492 $10,418 $12,334 $13,425 $14,833 $15,855 $16,604 $16,483 $12,022 $14,210

 

Turnaround does not seem to be the appropriate word in the context that Buffett used that word.

 

Reading 50 years of annual reports and following the company that long and it still is outside his circle of competence?

 

Maybe you have a much higher threshold for research. What companies do you consider to be in your circle of competence and how much time have you spent on them?

 

Vinod

 

[RadMan24]

Not to mention, Munger believes Buffett knowns IBM better than anyone, and, they bought it at a fair price, and they have an infinite holding period, unlike others. Following Buffett into IBM is anything but a short-term play, people forgot about that when IBM roared up past $200.

[NBL0303]

WEB said or wrote somewhere that he hopes IBM's price languishes for next few years while they buy back shares. I think he is A-OK waiting while they attempt their transition and continue to buy back shares. So easy to criticize WEB's decisions, so impossible to come anywhere near his track record. Hold onto IBM shares for 20 years and get back to us as to WEB's decision.

 

I'm pretty sure Buffett also wrote (almost verbatim) that turnarounds seldom turn.  I'm not saying that this won't eventually work.  I would say that in more than one way Buffett appears to be stepping outside or near the boundaries of  his circle of competence.  For one this is a tech company and secondly this is a turnaround.  By the way attempting a transition doesn't seem like the typical Buffettesque investment.

 

For a company reporting earnings like this:

 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$9,492 $10,418 $12,334 $13,425 $14,833 $15,855 $16,604 $16,483 $12,022 $14,210

 

Turnaround does not seem to be the appropriate word in the context that Buffett used that word.

 

Vinod

 

Amen.  Turnarounds rarely have nearly $20 billion annual cash flows in bad years.

[Dalal.Holdings]

 

For a company reporting earnings like this (the numbers are in millions of $):

 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$9,492 $10,418 $12,334 $13,425 $14,833 $15,855 $16,604 $16,483 $12,022 $14,210

 

Turnaround does not seem to be the appropriate word in the context that Buffett used that word.

 

Reading 50 years of annual reports and following the company that long and it still is outside his circle of competence?

 

Maybe you have a much higher threshold for research. What companies do you consider to be in your circle of competence and how much time have you spent on them?

 

Vinod

 

The ability of many investors to disregard the hard numbers you've presented while focusing on how they "feel" IBM is dying/irrelevant/unsuited vs its competition (ORCL, AMZN which have smaller profit) is fascinating. Many of the same people say Buffett has lost his marbles. Hmm...

[ZenaidaMacroura]

Not to mention, Munger believes Buffett knowns IBM better than anyone, and, they bought it at a fair price, and they have an infinite holding period, unlike others. Following Buffett into IBM is anything but a short-term play, people forgot about that when IBM roared up past $200.

I think it was TxLaw (who sat a few seats down from me at the Daily Journal meeting) who summed up Munger's comments about IBM as being critical of Berkshire's IBM position. 

 

Munger basically said IBM future was cloudy (pun intended  ;D)

[KCLarkin]

Munger basically said IBM future was cloudy (pun intended  ;D)

 

I think that is an oversimplification. He said that the legacy business was sticky and would last a long time. The "automated checklist" was the part he was unsure of.

 

Maybe a more telling sign is that BRK didn't buy anymore shares in Q4. They bought WFC instead.

 

[fareastwarriors]

IBM to Acquire Truven Health Analytics for $2.6 Billion

 

 

http://www.bloomberg.com/news/articles/2016-02-18/ibm-to-acquire-truven-health-analytics-for-2-6-billion

[KCLarkin]

Morgan Stanley upgrades, shares jump

http://seekingalpha.com/news/3118866-ibm-morgan-stanley-upgrades-shares-jump?app=1&uprof=45#email_link

[DollarKing]

For what it's worth;

 

Martin Shkreli's (yep, him) - IBM model valuation.

 

https://www.youtube.com/watch?v=TRXqVOrdsz0

 

(some interesting Excel abilities.)

[eclecticvalue]

He has been teaching Investing and Chemistry classes online. Surprisingly he is very smart and articulate when teaching Investing. He does call himself a long term investor. So there is some redeemable qualities. I think he is a good teacher. I will see if I can learn chemistry from him.