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Over 30 years of investing in individual stocks. Extensive business experience with small to mid-size companies, including as CEO. Many hundreds of blog posts on financial and economic matters since 2008. Focus on value with catalysts for upside price action. Background as a physician and... More
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  • Fred Hickey Is Short IBM 2 comments
    Jun 14, 2014 11:30 AM | about stocks: IBM

    Regular readers are aware that I have been negative on IBM (since last summer), writing cautionary/critical articles on it on Seeking Alpha even though I'm a long-only investor. My most recent article on International Business Machines (NYSE:IBM) was Bloomberg Business Week Joins DoctoRx In Warning About The Risks In IBM. Well, I have good company now.

    Today's Barron's midyear Roundtable contains extended comments from tech expert Fred Hickey that echo mine. Some comments: I'm short IBM. The company missed revenue estimates in the first quarter and posted the lowest revenue since the first quarter of 2009. Revenue has declined for eight consecutive quarters. The hardware, software, and services businesses all came in below expectations. Business was down by double-digits in China, and that was before China told its banks a few weeks ago not to use IBM servers anymore...

    IBM is the poster child for financial engineering. It is piling up debt like there's no tomorrow. Debt has risen to $44 billion, up $10.6 billion in one year. The company is borrowing to buy back shares because its cash flow is imploding. It has been declining since at least 2009. IBM front-loaded stock repurchases in the first quarter to make earnings...

    IBM could fall to $150 or so from a current $186...

    If IBM focused on developing new businesses or products instead of financial engineering, it might grow. Its roadmap to achieving the $20 a share in earnings that it promised Wall Street is killing it. If you pile up that much debt, you won't have any money to invest in capital projects or research and development. You'll be fending off debt-ratings downgrades from S&P and Moody's.

    In an inflationary world, IBM is shrinking in nominal terms. I'm actually less bearish on it than before due to its continued stock underperformance and apparent plans to sell its money-losing chip division, but I want to see a plan for organic growth from IBM before having any interest in owning its shares.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Not investment advice. I am not an investment adviser.

    Stocks: IBM
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Comments (2)
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  • Ben Hanson
    , contributor
    Comments (525) | Send Message
    After reading Cringely's "Decline and Fall of IBM," I can see why.
    15 Jun 2014, 05:00 PM Reply Like
  • Kurt Tennis
    , contributor
    Comments (49) | Send Message
    I am not afraid of the growing debt. The most of the debt is paired with leasing to the customers. Historical deliquency rate is tolerable.


    Moreover, to my understanding negative revenue growth is temporarily. Earlier this year, IBM delivered new version of System Z. Watson is like a call option; it may be game changer in the industry. IBM has sizable cloud revenue and still growing.


    And regarding employee morale: The morale may be low even if you manage the business right. It is hard to keep morale up in huge company. 'Cringely' doesn't see forest for the trees. The layoffs are deeply needed if you increase efficiency every few quarters.


    Disclosure: Long IBM. Although, I wish for the stock to go lower.
    17 Jun 2014, 02:15 PM Reply Like
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