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Buybacks give IBM a big EPS lift; hardware sales continue plunging

  • IBM has established 2014 EPS guidance of $18, slightly above a $17.97 consensus.
  • Revenue continues to be pressured by nosediving hardware/chip sales, which declined 26% Y/Y in Q4 after dropping 17% in Q3 and 12% in Q2. Mainframes -37%, Power servers (UNIX-driven) -31%, x86 servers (reportedly on the block again) -16%, storage -13%, chips -33%. The numbers suggest share loss to H-P, Dell, TSMC, and others.
  • Global Technology Services revenue -4%, same as Q3 and Q2. Global Business Services +1%. Services backlog is at $143B, +1% Q/Q and +2% Y/Y. Software +3% vs. +1%, global financing flat vs. +6%.
  • $5.8B was spent on buybacks, up from $1.9B in Q3 and providing a big lift to EPS. Gross margin, which has been steadily rising in recent years, rose 30 bps Y/Y to 52.6%.
  • Asia-Pac sales, pressured by NSA fallout, were soft again, declining 12% Y/Y; they dropped 15% in Q3. Americas fell 3%, and EMEA was up 1%. Sales to "growth markets" declined 5% after falling 9% in Q3.
  • IBM -2.2% AH. CC at 4:30PM ET.
  • Q4 results, PR
Comments (38)
  • Revenue growth is all that seems to matter. Banksters are selling of IBM to buy AMZN with both hands.
    21 Jan, 04:58 PM Reply Like
  • The tax rate went down over 10% and that was why earning seemed good.
    Debt went up by 20% so they could buyback stock.


    21 Jan, 05:03 PM Reply Like
  • Shares were bought back from the cash flow generated by the
    operations. Look at the cash flow statement again.
    21 Jan, 09:54 PM Reply Like
  • At the rate they are going, they won't be able to sell anything in Asia in a few quarters.
    21 Jan, 05:07 PM Reply Like


    Like the non main stream media way of looking the worlds biggest over hyped Wall Street salesman stock in history.
    21 Jan, 05:07 PM Reply Like
  • Archman


    One of many overhyped stocks.
    The Grim Reaper is around the corner.
    21 Jan, 11:42 PM Reply Like
  • Stock should be down 10% .... at least the money they borrow to buy back more stock will be able to buy the stock cheaper.
    21 Jan, 05:16 PM Reply Like
  • The long slow decline of IBM continues, maybe Watson can design something profitable.
    21 Jan, 05:24 PM Reply Like
  • Maybe Watson will get into high frequency trading.
    21 Jan, 08:28 PM Reply Like
  • Time for a new CEO
    21 Jan, 05:30 PM Reply Like
  • Revenue in 1997 was $78.5B, revenue in 2013 is $99.8B.


    If you take in inflation, revenue in real terms was bigger in 1997 than in 2013. Yet the stock has massively outperformed the S&P, and today it still trades at a cheap 12-13x earnings, while the market is somewhere at 18x earnings.


    Someone explain IBM's performance to me.
    21 Jan, 05:32 PM Reply Like
  • Look at other things besides revenue: total assets, net income, and retained earnings.
    MSN Money is a quick place to go.
    Here you can see 10 years of Ebit, Net Income, Assets going up, while Shares outstanding went down.
    Then you can select financial reports at the bottom left and go look at Balance Sheets and Income Statements.
    21 Jan, 06:05 PM Reply Like
  • "If you take in inflation, revenue in real terms was bigger in 1997 than in 2013. Yet the stock has massively outperformed the S&P, and today it still trades at a cheap 12-13x earnings, while the market is somewhere at 18x earnings.


    Someone explain IBM's performance to me."


    Hardcore financial engineering.
    21 Jan, 06:29 PM Reply Like
  • What a funny analysis.?IBM has also sold off many businesses during
    this period. Without factoring in the impact of business sales you can't draw
    the conclusion.
    21 Jan, 09:57 PM Reply Like
  • IBM has sold several businesses during this period. PC business is one.
    Factor in the sales of those businesses and then calculate the growth rate.
    21 Jan, 09:59 PM Reply Like
  • TBKV


    "Someone explain IBM's performance to me."


    I assume you mean the stock price. Answer, Ben Bernanke.
    21 Jan, 11:44 PM Reply Like
  • Don't pay any attention to these posts or this page. Every time you read that something is down, after being down last quarter, it is misleading as revenue being down is compared to the previous year same quarter, not to the sequential quarter in 2013. So this page is misleading as well as the posters who are obviously short. The comparisons are being written for the bears. Hardware is expected to be down and the comparisons are not sequential nor are they cumulative.
    21 Jan, 05:35 PM Reply Like
  • Momintin, shorts are borrowing to dump this earnings multiple glory hog en mass because they are in trouble. I think Rometti should be sacked. This is, correct me if I am wrong, the 7th or 8th quarter of negative rev growth and that's not misleading. This company is not selling enough stuff and barely making the Earnings figures through the use of one time items.
    21 Jan, 10:55 PM Reply Like
  • Momintn


    Comparisons to same quarter last year are very valid as there are seasonal factors that need to be looked at. All comparisons are valid---last year and sequential, one just needs to know what one is looking at (no insult intended or meant at you).


    The only comparison that is totally invalid is the one "compared to analysts expected numbers".
    21 Jan, 11:48 PM Reply Like
  • So I'm wondering.... for an intelligent and principled investor, why did Buffet buy IBM? It doesn't have anything close to a moat with plenty of competition, it's core business is technology and it's shedding parts because of sagging business. It's got rich cash flow but that's about it. What were his reasons to buy IBM? IMHO, if Buffet bought technology, Apple sounds more like a Buffet like investment to me - has a large moat, is a premium brand and it's area of technology is easier to understand with plenty of cash flow and it reached a nice bottom last year. His investment into Visa also makes sense. But IBM? I don't get it and don't know his reasons either and would like to know.
    21 Jan, 06:08 PM Reply Like
  • He feels it has a moat, he noted the "sticky" relationship of its business. Net income(although this year was mostly flat), margins and EPS have been skyrocketing. Revenues have not. It depends what you think is more important. Obviously the market right now loves top-line growth with Amazon, even though their bottom-line stinks. IBM is pretty much the opposite. Personally, the bottom line is what matters a great deal more to me. IBM should start to increase revenues in the 2nd half of 2014 anyway.
    21 Jan, 06:22 PM Reply Like
  • There are many smartphone and pc vendors. I don't know why you think Apple has a moat there. They are quite profitable and have a good customer base, but do not have the large client base that IBM has. IBM has a customer base that spends in the millions with them. The large installed base is one reason Buffet invested in IBM. Go read the ETF Moat website and you will see that a group of managers take under-valued stocks and then vote on who is to be included in the Moat ETF. IBM is in it, and Apple isn't.
    21 Jan, 06:33 PM Reply Like
  • I've been trying to figure out the same thing.
    21 Jan, 06:40 PM Reply Like
  • Keep up here, In short Apple and Microsoft's moat is a in-house OS (desktop and Mobile) that they have complete control over it allows them be in charge of their fate in the world of Tech, Intel, HP, Dell, and the Asian OEM's do not.
    21 Jan, 08:48 PM Reply Like
  • Did you just say Apple is "quite profitable." Wow, just wow. That's like saying AMZN is quite overvalued.
    21 Jan, 09:27 PM Reply Like
  • This entire chain of comments pitting IBM vs AMZN vs AAPL makes me realize how fickle tech can be and why it continues to remain a small part of my portfolio :)


    I continue to remain surprised at Buffet's purchase of IBM, but then again he bought into GM and the newspapers so what I do know.
    21 Jan, 09:59 PM Reply Like
  • See my article about Buffett's IBM investment rationale. It seems that Buffett is ok with the declining revenues as long as EPS goes up.
    22 Jan, 12:34 AM Reply Like
  • Actually you can conclude that the decline in "growth markets" being less in Q4 as being a positive and that the decline is dissipating. Previously IBM had huge growth in emerging markets for several years and the comparisons have been more difficult.
    21 Jan, 06:16 PM Reply Like
  • This report was probably the easiest short you'll find in 2014. The real question was why the stock rallied from $175 in the first place? IBM starts to look interesting again in the mid-$150's.
    21 Jan, 07:15 PM Reply Like
  • Think of it this way. Shorts are more short than they thought they were. And we are likely to get a dividend increase in the first half.
    21 Jan, 07:48 PM Reply Like
  • Investors now own 4.5% more of IBM than we did before.
    21 Jan, 08:05 PM Reply Like
  • Financeminister,


    Mycroft Psaras has done extensive research on a lot of firms supposedly patterning his analyses on the fundamentals used by warren Buffet and crew. Mycroft's techniques are more complex and time consuming than I could ever do, but they center on the core of a business' ongoing financial results and strength.


    His analysis gives "high marks" to IBM.
    21 Jan, 08:35 PM Reply Like
  • I have been a holder of IBM for over 20 yrs., and believe current management is doing a good job of shepherding the firm out of being a hardware company into a service company, without major disruptions to their customer base. Apparently, moving out of a very low margin high revenue business is not a popular thing to do by Wall Street standards.
    21 Jan, 08:45 PM Reply Like
  • Sell.
    21 Jan, 10:57 PM Reply Like
  • IBM still in decline growing ever smaller in the world of tech.
    21 Jan, 08:50 PM Reply Like
  • IBM's business is shifting in response to the new trends. Three areas they have
    identified: Smart Planet, Cloud and Business Analytics show good growth.
    It will take few years to make a major impact on sales.
    IBM seems to be managing the decline in hardware sales reasonably. The real
    decline is only 3% in sales in constant currency. IBM can't be held responsible
    for the appreciation of the dollar.
    NSA has adversely affected their business in China, Russia and Brazil( so called
    growth markets) by the news of NSA creating weaknesses in American IT
    products to make it easy for snooping. This has made China, Russia and Brazil
    wary of buying American software and hardware products. IBM is suffering from
    that paranoia. They won't mention it because they have so much business with
    Federal Agencies. NSA's shenanigans will hurt them in growth markets for many
    years to come.
    21 Jan, 10:11 PM Reply Like
  • The American companies can just say no, fight for no snooping without a search warrant but they don't, IBM is in a decline and that decline started at the dawn of personal computing in the late 70's, IBM has been retreating to a ever smaller corner of the tech market ever since, stock buybacks aren't solution, letting Intel build smaller laptop cpu's for Apple isn't a solution, giving up on OS design isn't a solution, selling the Laptop division to the Chinese isn't a solution, like I said before IBM is retreating to Tech irrelevance. Move your money on.
    22 Jan, 12:14 AM Reply Like
  • Lot of big names like IBM all negative after reporting earnings early in the season. They're going to need good earnings numbers going forward to keep this one going
    22 Jan, 03:04 AM Reply Like
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