IBM - International Business Machines

[frommi]

I work in IT.  I've been following the cloud computing thing for years.  In my opinion it is vastly over-rated, a lot of hype.  It solves issues around installation and maintenance of software, which in my opinion are not even real issues nowadays.  It does nothing to solve the real issue with software that most vendor's solutions do not do exactly what you want and require customization.  In fact, it actually makes customization more difficult in many cases.  So, in areas where customization is not an issue or where the problem space is so well defined that they can solve it (think CRM), cloud will take market share, everywhere else (and everywhere else is HUGE) I just don't see it.  You are still going to need software consultants to help out in understanding the needs, integrating systems and architecting solutions for most business software. 

 

I will also point out that cloud is actually more profitable, generally, than non-cloud solutions.  At least in the cases I have looked at it.  So as IBM goes into the space, even if they give market share, they may be able to hold profits level.

 

EDIT: Now that I took the time to read the actual post from drucenmiller, I realize that he is talking more about amazon and platform/infrastructure as a service.  In that sense, it's still a bit overhyped but I do like amazon's offerings and it will definitely take strong market share.  The other component to cloud computing is software as a service which is what I was referring to.

 

I am also in IT and i think IBM is 100% on the right track here, cloud services eat into their hardware business, but the money and the high-margin business is in consulting and software. So reducing the hardware business and focusing on software/services is perfect. Amazon doesn`t really offer something in the consulting/software field, nor has it a strong brand there. One has to understand that using cloud services is like using a tool, but you need someone to set it up for you. And for the big data solutions this is still IBM/ACN.

 

Revenues are only shrinking because the low-margin hardware business is reduced, and share buybacks are perfect for me as a shareholder, much better than buying overvalued startup companies where the only usable recource are the developers on board.

 

Druckenmiller seems to have no clue what he does here :).

[txlaw]

 

http://www.bloomberg.com/news/2013-11-22/druckenmiller-shorting-ibm-in-bet-cloud-computing-to-win.html

 

Apparently, Druckenmiller read the Bloomberg BusinessWeek article on IBM (http://www.businessweek.com/articles/2013-11-15/ibm-faces-a-crisis-in-the-cloud) and decided to put a trade on. ;D

 

Just kidding.  Perhaps he has been thinking about this for a while, although it's surprising to hear how high probability he thinks his short is. 

 

You guys might want to read the AMZN thread if you're interested.  Lots of discussion over what cloud computing means for these big tech guys.  I was invested in DELL before, and now I've got positions in both IBM and HPQ.  It's hard to say how much revenue decline there will be, but I don't think we're talking about an inexorable decline in IBM profit per share.   

[fareastwarriors]

 

http://www.bloomberg.com/news/2013-11-22/druckenmiller-shorting-ibm-in-bet-cloud-computing-to-win.html

 

Apparently, Druckenmiller read the Bloomberg BusinessWeek article on IBM (http://www.businessweek.com/articles/2013-11-15/ibm-faces-a-crisis-in-the-cloud) and decided to put a trade on. ;D

 

Just kidding.  Perhaps he has been thinking about this for a while, although it's surprising to hear how high probability he thinks his short is. 

 

You guys might want to read the AMZN thread if you're interested.  Lots of discussion over what cloud computing means for these big tech guys.  I was invested in DELL before, and now I've got positions in both IBM and HPQ.  It's hard to say how much revenue decline there will be, but I don't think we're talking about an inexorable decline in IBM profit per share. 

 

I thought he was more  a macro trader.

[txlaw]

 

http://www.bloomberg.com/news/2013-11-22/druckenmiller-shorting-ibm-in-bet-cloud-computing-to-win.html

 

Apparently, Druckenmiller read the Bloomberg BusinessWeek article on IBM (http://www.businessweek.com/articles/2013-11-15/ibm-faces-a-crisis-in-the-cloud) and decided to put a trade on. ;D

 

Just kidding.  Perhaps he has been thinking about this for a while, although it's surprising to hear how high probability he thinks his short is. 

 

You guys might want to read the AMZN thread if you're interested.  Lots of discussion over what cloud computing means for these big tech guys.  I was invested in DELL before, and now I've got positions in both IBM and HPQ.  It's hard to say how much revenue decline there will be, but I don't think we're talking about an inexorable decline in IBM profit per share. 

 

I thought he was more  a macro trader.

 

I thought so too.  But perhaps he also focuses on reflexivity-oriented trades.  Isn't he also in HLF?

 

Pretty much everyone and their mom has heard of cloud computing and how it's changing how things work in the world.  And it's pretty widespread belief that IBM will be a "loser" because of cloud computing.  So maybe he's just capitalizing on this sentiment. 

 

Given his views on macro, I can't imagine his macro trades have paid off, but who knows.

[Guest wellmont]

Could Druckenmiller be missing the point?

 

IBM's strength is its ability to integrate different software and hardware together.  They provide IT services for large organizations (who wish to outsource their IT).  Yes IBM develops software and makes hardware but that isn't where their competitive advantage lies.

 

He's not a tech anlayst. He could never write huge sell side reports on wall street about IBM. He's a conceptual analyst. He understands complex models.

 

The market is up a lot. his largest position is goog. he loves it. it's "new" technology. How to hedge a stock that is up big in a market that is up big? short some "old" technology against it. you're still net long but now not as much. If the market goes down, IBM is going down and so is Goog. If the market goes up, goog goes up more than Ibm. Careful when a "guru" says he is short something. He may be short 100 shares or 1000 shares or 1m shares. It's often simply a hedge against another position. Jim Rogers is notorious for this. He is way long commodities, which is a bullish play. So he shorts tech stocks against it, which would decline if the economy tanks.

[no_free_lunch]

Another thought on the cloud computing theme, the SAAS side of it anyways, is that it's not necessarily a zero-sum game.  You don't just have customers switching vendors, for smaller companies in particular you may actually get them to spend more on software than they would have otherwise.  For them, the zero-install/zero-maintenance promise of SAAS could actually be a huge selling point.  Take as an example fleet management software.  Previously, at some small industrial outfit this would have been done by hand or at best in an excel spreadsheet.  However, if someone is offering it for $200 a month, I could see companies actually committing a bit of their revenue to this as it will pay for itself.  I guess, in the really big picture maybe it is a zero sum game but that little bit of money is being taken from the automotive sector and pushed into the software sector.  So for the software sector it is not zero sum.

[Palantir]

It seems to me that when most analysts talk about "cloud computing", they're referring to the PaaS and IaaS side of the game...

[arbcon]

I have a crazy question for this thread. Has anyone asked why Amazon won the government contract against Ibm when Ibm bid 30% less? I have to check these numbers but i think they are order of magnitude right. So, if true, why? The only thing I can think of is that Bezos is now quite involved with government now that he has the Post.

In other words, are we sure that the contract was won entirely on merit? Some help needed here, please.

[no_free_lunch]

It seems to me that when most analysts talk about "cloud computing", they're referring to the PaaS and IaaS side of the game...

 

Sometimes, sometimes not.  At any rate, PAAS & IAAS seem like significantly less of a threat than Linux was a decade ago.  At least these competitors are charging so IBM actually has a shot at competing.

[rogermunibond]

I have a crazy question for this thread. Has anyone asked why Amazon won the government contract against Ibm when Ibm bid 30% less? I have to check these numbers but i think they are order of magnitude right. So, if true, why? The only thing I can think of is that Bezos is now quite involved with government now that he has the Post.

In other words, are we sure that the contract was won entirely on merit? Some help needed here, please.

 

You might have it backwards there with your theory.

 

http://www.theregister.co.uk/2013/11/08/ibms_cia_cloud_claims_smashed_by_court_opinion/

[Palantir]

IBM pension liabilities from 10-K

 

Already contributes about a billion+ a year to various retirement accounts. For U.S plan, it plans to contribute about 438 million in ...

 

What is the TL:DR version? :)

 

Anyways from what I can see, they have an 8B liability for US plans, and a 13B liability for non US plans, they recognize this as a 20B liability on their B/S. They also have a net debt position of 20B+ Making their adjusted EV about 240B. Plus, they burn about 2B in cash flow in acquisitions, making their adj FCF 13B, so your FCF yield is 5.4% with minimal growth. Some cash cow...

[rmitz]

I have a crazy question for this thread. Has anyone asked why Amazon won the government contract against Ibm when Ibm bid 30% less? I have to check these numbers but i think they are order of magnitude right. So, if true, why? The only thing I can think of is that Bezos is now quite involved with government now that he has the Post.

In other words, are we sure that the contract was won entirely on merit? Some help needed here, please.

 

To be honest, what I have seen in IBM's contracts is that they tend to overpromise and underdeliver, either with huge cost overruns or simply a bad result from the contract. 

[frommi]

http://seekingalpha.com/article/1860021-the-thinking-behind-druckenmillers-selling-short-ibm?source=yahoo

[LowIQinvestor]

IBM doesn't innovate? My money is on Buffett. He rarely disappoints me

 

http://www-03.ibm.com/innovation/us/watson/

 

 

[fareastwarriors]

http://bits.blogs.nytimes.com/2013/12/04/ibms-big-plans-for-cloud-computing/

 

IBM’s Big Plans for Cloud Computing

[Palantir]

Worldwide Server Market Revenues Decline -3.7% in the Third Quarter as Weak Unix Server Demand Weights on the Market, According to IDC

http://www.idc.com/getdoc.jsp?containerId=prUS24476413

[fareastwarriors]

http://www.bloomberg.com/news/2013-12-10/ibm-says-economy-remains-discouraging.html

 

IBM Says Economy Remains Discouraging

[ItsAValueTrap]

Usually people who complain about the economy (when it's not a recession) are failing at what they do and don't want to admit it.  I don't think that there is a worldwide recession going on right now.  The S&P is up ~30% this year.  The economy is not a good excuse.

[LowIQinvestor]

http://www.bloomberg.com/visual-data/industries/detail/it-services

Interesting IBM stats- ROE 85%!?

 

Can anyone explain why Accenture deserves a 15 forward PE and IBM gets a 9 PE?

 

 

[Palantir]

ACN has better growth, no debt and a smaller pension plan liability.

[fareastwarriors]

http://seekingalpha.com/article/1899501-will-ibm-grow-revenues-ever-again

 

Will IBM Grow Revenues Ever Again?

[Guest wellmont]

http://www.bloomberg.com/visual-data/industries/detail/it-services

Interesting IBM stats- ROE 85%!?

 

Can anyone explain why Accenture deserves a 15 forward PE and IBM gets a 9 PE?

 

assumption is Accenture trades at the correct p/e ratio.

[LowIQinvestor]

My suggestion is that IBM seems extremely undervalued at a 9 forward PE in the context of ACN as one comp. I guess one could argue that ACN doesn't deserve a 15 PE and therefore it is a bad comp.

 

Can't help but take Mr. Pabrai's advice and be a shameless cloner of 13-F's.

 

 

 

 

[fareastwarriors]

Technology stalwarts: vintage value

 

 

Lumbering technology stalwarts IBM, Cisco and Oracle cannot wait to bid 2013 farewell. The best share price gain was just 10 per cent: the worst, a 6.5 per cent fall. Dull performance reflected revenue growth below already muted investor expectations. The silver lining could be that those expectations may have finally reset to a realistic level. These companies still have formidable earnings power and generate loads of cash.

 

 

The excuses were plentiful for IBM, Cisco and Oracle. We heard that marketing teams dropped the ball, corporate tech spending was weak and that emerging market growth had abruptly halted. When the dust settles, aggregate revenue for the trio in 2013 is expected to fall 2 per cent. The 2014 outlook is not much better.

 

The simple reality is that their products are not that special any more. Software can be cheaply rented, and even be substituted for hardware. The Bessemer Cloud index, a composite of high-flying software upstarts, is up more than 40 per cent this year. The three elder statesmen have spent $25bn on deals since 2011, hoping to keep pace with the newcomers.

 

The current forward P/E multiples for IBM, Cisco and Oracle are all between 5 and 20 per cent below their median multiples since 2011. That seems fair, but when those P/E multiples are adjusted for forward growth (the PE/G ratio) only IBM is at a discount to its average. Cisco and Oracle trade at a 10 per cent premium to their median historical PE/G ratios.

 

Whatever correction remains to occur at Cisco and Oracle, their size, profits and cash flow should not be dismissed. Each has an operating margin above 20 per cent. They have spent $80bn on dividends and buybacks in the past three years, all feats that upstart rivals may never achieve. Oracle, IBM and Cisco have become utility stocks. Utilities do not shine until a downturn hits.

 

 

http://www.ft.com/intl/cms/s/3/7ac8a0bc-66a5-11e3-aa10-00144feabdc0.html?siteedition=intl#axzz2oLY1i2Uh

[yadayada]

I can never understand how people value this. Also dont understand why buffet likes it. Is it because he knows management and trusts them? Seems so complex to analyze this company.