tombgrt Posted October 16, 2013 Share Posted October 16, 2013 Also interesting to note how little attention this company gets on the board. Tomorrow a 2 year low, Buffett would buy even more at $170 and Douglas Kass is bearish. Less than 9 times 2015 earnings for the 4th most valuable brand in the world (behind Apple, Google and KO according to Interbrand). Market is assuming the bump is permanent. Same old song...? Link to comment Share on other sites More sharing options...
JBird Posted October 16, 2013 Share Posted October 16, 2013 After reading their annuals I don't feel like I can predict their economics the way others can. I can't speak for other board-members but maybe it's a similar story. If I was able to understand it better, I'd like it for some of the reasons you stated. Link to comment Share on other sites More sharing options...
txlaw Posted October 17, 2013 Share Posted October 17, 2013 IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? Link to comment Share on other sites More sharing options...
Guest valueInv Posted October 17, 2013 Share Posted October 17, 2013 IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? So they have a long runway on the hardware business like Dell? Link to comment Share on other sites More sharing options...
hyten1 Posted October 17, 2013 Share Posted October 17, 2013 txlaw, i think ibm is where dell wants to be, but dell is still a ways off also the other stuff you mention (brand, r&d, diversified, more entrenched) IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? Link to comment Share on other sites More sharing options...
value-is-what-you-get Posted October 17, 2013 Share Posted October 17, 2013 It seems they are executing the stated plan exactly. Letting go of lower margin business and going after higher margin business means more profit from less sales. I can't see how this is a bad thing. They've just built a computer the size of a large warehouse in my city complete with physical berm protection, gated access, backup generation and no signage. The reason it's located here is proximity to the central distribution hub of generated electricity in Ontario, hence minimal possible downtime. It's primary use will be leasing out time to map the human brain and replicate it's functioning. This is a far cry from cash registers or cloud storage of pictures. Who knows if it pays, but the bottom line seems to indicate it does. Link to comment Share on other sites More sharing options...
txlaw Posted October 17, 2013 Share Posted October 17, 2013 IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? So they have a long runway on the hardware business like Dell? IBM doesn't because they sold off their PC business, thus killing any chance that they could be a low cost provider of on premises boxes. DELL still has a long runaway for its server/storage/networking solutions. Both IBM and DELL are trying to be big players in private cloud and hybrid cloud solutions. As I said before, just because the public cloud grows at a rapid clip doesn't mean that the private cloud doesn't grow. Link to comment Share on other sites More sharing options...
txlaw Posted October 17, 2013 Share Posted October 17, 2013 txlaw, i think ibm is where dell wants to be, but dell is still a ways off also the other stuff you mention (brand, r&d, diversified, more entrenched) IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? Very true. It will be interesting to see where DELL is at ten years from now. Also interesting to see where HPQ is at. Any thoughts on HPQ? Link to comment Share on other sites More sharing options...
beerbaron Posted October 17, 2013 Share Posted October 17, 2013 txlaw, i think ibm is where dell wants to be, but dell is still a ways off also the other stuff you mention (brand, r&d, diversified, more entrenched) IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? Very true. It will be interesting to see where DELL is at ten years from now. Also interesting to see where HPQ is at. Any thoughts on HPQ? I much prefer where turnarounds include or insulating a problem (bank loans, bad division, recall, etc...). For HPQ and DELL the problems seems to come from a market that is being commoditized every minutes, much harder to turnaround! BeerBaron Link to comment Share on other sites More sharing options...
txlaw Posted October 17, 2013 Share Posted October 17, 2013 txlaw, i think ibm is where dell wants to be, but dell is still a ways off also the other stuff you mention (brand, r&d, diversified, more entrenched) IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? Very true. It will be interesting to see where DELL is at ten years from now. Also interesting to see where HPQ is at. Any thoughts on HPQ? I much prefer where turnarounds include or insulating a problem (bank loans, bad division, recall, etc...). For HPQ and DELL the problems seems to come from a market that is being commoditized every minutes, much harder to turnaround! BeerBaron I would argue that with HPQ and DELL, it's not so much about turnaround as it is about transformation. The same was true of IBM at one point. But the market has been far less kind to those companies than IBM (at this time) because of the percentage of profit attributable to their commoditized product lines. But, again, that's exactly where IBM was at back in the day! With tech, everything tends to be come commoditized over time. It's just a question of how long it takes. IBM definitely needs to be worried about the rise of the public cloud and other solutions that can cut IBM out as a middle man. But IBM will probably adapt. DELL is adapting as well. It looks like HPQ might be doing so too, but I want to see a bit more from Meg Whitman before making any decisions on that front. Link to comment Share on other sites More sharing options...
Guest valueInv Posted October 17, 2013 Share Posted October 17, 2013 IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? So they have a long runway on the hardware business like Dell? IBM doesn't because they sold off their PC business, thus killing any chance that they could be a low cost provider of on premises boxes. DELL still has a long runaway for its server/storage/networking solutions. Both IBM and DELL are trying to be big players in private cloud and hybrid cloud solutions. As I said before, just because the public cloud grows at a rapid clip doesn't mean that the private cloud doesn't grow. Actually it does. Link to comment Share on other sites More sharing options...
Guest valueInv Posted October 17, 2013 Share Posted October 17, 2013 IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? IBM is nothing like Dell. - Unlike Dell, IBM's management were smart enough to get out of the PC business a long time ago - Unlike Dell, IBM's management has been very good at capital allocation - Unlike Dell, IBM's management has a track record of integrity - Unlike Dell, IBM has one of the best R&D labs in the world - Unlike Dell, IBM has a stable and diversified business - Unlike Dell, IBM is not dependent of M&A for a turnaround I could go on and on. There is a reason why Buffet didn't touch Dell even at low prices and why IBM is one of his biggest holdings. Link to comment Share on other sites More sharing options...
Guest valueInv Posted October 17, 2013 Share Posted October 17, 2013 txlaw, i think ibm is where dell wants to be, but dell is still a ways off also the other stuff you mention (brand, r&d, diversified, more entrenched) IBM is a lot like DELL in terms of business model. Of course, IBM has a much better global brand and mindshare, a far more diversified portfolio, and way more R&D and innovation in-house. I'm getting interested here. I wonder how many people who are interested in IBM are also considering HPQ, in the hopes that HP will successfully become more like IBM. Thoughts? Very true. It will be interesting to see where DELL is at ten years from now. Also interesting to see where HPQ is at. Any thoughts on HPQ? I much prefer where turnarounds include or insulating a problem (bank loans, bad division, recall, etc...). For HPQ and DELL the problems seems to come from a market that is being commoditized every minutes, much harder to turnaround! BeerBaron I would argue that with HPQ and DELL, it's not so much about turnaround as it is about transformation. The same was true of IBM at one point. But the market has been far less kind to those companies than IBM (at this time) because of the percentage of profit attributable to their commoditized product lines. But, again, that's exactly where IBM was at back in the day! IBM was never owned by a PE firm and loaded with debt. They didn't try to turn around by acquiring companies. Further, they bought an outsider in to make the hard decisions. They didn't keep the guy who oversaw its downfall. Link to comment Share on other sites More sharing options...
rockket Posted October 17, 2013 Share Posted October 17, 2013 just jumped on this one with the dip Link to comment Share on other sites More sharing options...
tombgrt Posted October 17, 2013 Share Posted October 17, 2013 Same. Bought some 2016 leaps. Link to comment Share on other sites More sharing options...
boilermaker75 Posted October 17, 2013 Share Posted October 17, 2013 just jumped on this one with the dip I am short some Oct 180- and 185-strike puts, so come tomorrow I should have some IBM at a basis of 177 and 183.60. Wrote some more puts this morning at a strike of 175 and I have orders in at a strike of 170 to either average down or pick up some cash. Link to comment Share on other sites More sharing options...
phil_Buffett Posted October 17, 2013 Share Posted October 17, 2013 i also bought more today morning Link to comment Share on other sites More sharing options...
dolce2think Posted October 17, 2013 Share Posted October 17, 2013 IBM is indeed interesting here... I have read the bear case - the most prominent I think is Credit Suisse from August, in the attachment. Congrats to them their target was reached today... The main points are: 1) FCF is much lower than stated 2) cost cutting is done with 3) "organic" growth is negativ, with the unix and hardware division in secular decline. Regarding the FCF, I think they are not getting it right here. It does not matter where IBM spends its money, as long as they get a good return for it - be it acquisitions, ppe capex or share purchases, whatever. Their point that "Cash is used to fund the accounts receivables of the financing business" is moot, since the "IBM bank" has high ROE (over 30%). As per the acquisitions - they have to be opportunistic. Here IBM (as the other "big software players") have the advantage of their size - they can pay the highest price for a new software and still make 15% ROE, since they can lever the client base. IBM is not going after more revenue, but after ROE, after earnings - even if revenues decline. It would be helpful if some board members could shed light on their products, whether they are in secular decline. To my view, since IT departments must transition to the cloud or hybrid architecture, there will be a lot to do for consultants. After that, the world might look indeed different - my best guess is that the hardware world will be almost completely commoditized and in professional centralistic buyers decisions - cloud operators. Essentially the user will have a screen with a small engine attached, while the rest is in the cloud. The operators of the cloud are prone to using open source software for the operating system, as this is most robust and cheap, and they are geeks who can run this anyways. Essentially there will be "only software" left - but from my understanding most software for big clients is customized. So IBM and other consultants work would then be to look at the processes and needs and find products and programmers to build an app for this. DolceIBM_creditsuisse.pdf Link to comment Share on other sites More sharing options...
fareastwarriors Posted October 17, 2013 Share Posted October 17, 2013 http://www.businessweek.com/articles/2013-10-17/ibm-singing-the-big-blues-again#r=rss IBM: Singing the Big Blues Again Link to comment Share on other sites More sharing options...
fareastwarriors Posted October 17, 2013 Share Posted October 17, 2013 10/17/13, FROM CS: F3Q13 Results: Challenging Times ■ Results weaker than expected. Results were again weaker than expected as revenue dropped 4% y/y and earnings were 10% light of consensus, normalizing for tax rate. While IBM reiterated its guidance of $20 in 2015 earnings, our confidence in the quality of this roadmap remains low. We remain concerned with weak FCF, hardware performance and a less effective mix up in software revenue. This suggests the issues facing the company could be more than temporary. We adjust our earnings estimates to $16.35/$18.45 for 2013/2014 to account for a lower tax rate, reduce our price target to $160 from $175 and reiterate our Underperform. ■ Headwinds to growth. Revenues slipped 4% y/y and the organic growth remains at depressed levels. We forecast revenue declines of 4% for 2013 and only 1% growth for 2014 as headwinds remain. Hardware fell 17% y/y, due to weakness in China and execution. While these issues are temporary, underlying trends reflect an increasingly uncompetitive portfolio, affecting software and services pull through. Services signings were weak, down 7% y/y, and growth is likely to remain anemic. In software, we continue to believe that IBM has a weaker, more fragmented offering than other large software vendors and is under exposed to the critical applications space. ■ FCF weak again… FCF was down 22% y/y and conversion stands at 67% due to a combination of weaker operating income and cash tax headwinds. Management sees improvements ahead, but ultimately ongoing restructuring and the impact of financing receivables could keep conversion below 100% and we forecast 75%/81% for 2013/2014. ■ Target price of $160. At first glance, on $20 of 2015 EPS, shares are not overly expensive; however, when focusing on FCF attributable to shareholders, i.e., after financing and M&A, conversion today stands at 67%. Importantly, conversion has deteriorated every year since 2009, and now is the lowest within large cap tech, applying 10x multiple yields 14% downside. Link to comment Share on other sites More sharing options...
plato1976 Posted October 17, 2013 Share Posted October 17, 2013 valueInv, May I ask if you have already figured out how the open cloud thing will impact IBM ? I am quite clueless at this time 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 October 17, 2013 Author Share Posted October 17, 2013 I think the big picture is that technology is getting more complicated and this will drive demand for IT integration services. This should bode well for IBM as IBM is good at handling large, complex IT deployments. Link to comment Share on other sites More sharing options...
beerbaron Posted October 17, 2013 Share Posted October 17, 2013 I have been looking at IBM for the last 2 years. I'm happy to finally deploy some cash, I think it's been a year since I bough anything (except arbitrages). Well I only need to find a home for that remaining 25% cash now! BeerBaron Link to comment Share on other sites More sharing options...
jeffmori7 Posted October 17, 2013 Share Posted October 17, 2013 I have been looking at IBM for the last 2 years. I'm happy to finally deploy some cash, I think it's been a year since I bough anything (except arbitrages). Well I only need to find a home for that remaining 25% cash now! BeerBaron What finally triggered your purchase, today's drop, or more than that? What are your thought about the earnings? Link to comment Share on other sites More sharing options...
Guest valueInv Posted October 18, 2013 Share Posted October 18, 2013 valueInv, May I ask if you have already figured out how the open cloud thing will impact IBM ? I am quite clueless at this time 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. Well, they have already started impacting (despite what you hear about "long runways"): http://gigaom.com/2013/10/17/for-ibm-hardware-news-is-bad-news/ The article posted earlier sums it up pretty well: http://www.businessweek.com/articles/2013-10-17/ibm-singing-the-big-blues-again#r=rss One more comment: I've been reading about posts how even in the era of the cloud, IBM's consultant/services business will do well. I don't think so - for two reasons: - The maintenance, customization, integration of cloud applications is much simpler than on-premise apps (this is one of the big reasons for moving to the cloud). This means fewer billable hours for IBM - The SaaS vendors themselves want a chunk of that business and they are best positioned to get the contract since they understand their process better. Bottomline: Tough days ahead. Expect further drops. However, IBM is best positioned to make the transition. Unlike other, they have a huge breadth that will allow them to transition to a new cloud value chain and provide products for it. I can't tell you how yet - its a leap of faith in management you'll have to take. A lot depends on the current team - I'll be watching closely. I don't think this is a stock that is going to give you quick huge returns like BAC,etc. I think a lot of people here may be disappointed. This is a Buffet stock. Hold forever and slowly you'll start seeing compounding gain speed. I have added a small amount today. Looking to add more in the coming months (or years). Link to comment Share on other sites More sharing options...
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