Valuing IBM's Software Franchise
Zero Gravitas • 132 Comments
Zero Gravitas • 132 Comments
IBM's 21st Century Transition Is Failing
Peter E. Greulich • 256 Comments
Peter E. Greulich • 256 Comments
Mon, Jan. 25, 9:38 AM
- Citing higher deal risk and weakening NAND fundamentals, CLSA's Mark Heller has downgraded SanDisk (SNDK -1.6%) to Underperform, and cut his target by $16 to $70.
- Heller doesn't think weakening fundamentals will unravel Western Digital's (WDC -2.2%) pending cash/stock acquisition of SanDisk, but is worried about the potential for Tsinghua Unigroup subsidiary Unispendour to walk away from its deal to buy a 15% stake in Western for $92.50/share (107% above Western's Friday close).
- If Unisplendour was to walk away, Heller sees Western shareholders deciding on the SanDisk deal. The deal calls for Western to pay $85.10 in cash and issue 0.0176 shares for each SanDisk share provided the Unisplendour investment has closed prior to the acquisition. If it hasn't, the cash payout drops to $67.50, and the stock payout rises to 0.2387 shares. SanDisk currently trades below $67; deal closing has been forecast to occur in calendar Q3.
- Separately, Western has announced the purchase of over 100 IBM "patent assets" related to distributed storage, object storage, and non-volatile memory, as well as a cross-licensing deal with the IT giant; terms are undisclosed. Western says the purchase will augment an existing portfolio of 10K+ patents and patent applications.
- SanDisk's Q4 report arrives on Wednesday. Western's FQ2 report is due on Thursday.
Fri, Jan. 22, 12:33 PM
- IBM is nearing a "big move to improve its ties" with machine/log data analytics software leader Splunk (SPLK +2.6%), reports Northland Securities' Tim Klassell. He sees such a deal providing a "nice tailwind" for Splunk's efforts to win larger deals.
- FBR argued last month Splunk could be a 2016 IBM acquisition target, but it's worth noting Splunk would be much more costly than recent IBM analytics acquisitions. Regardless, Big Blue's "business analytics" revenue (covered a variety of analytics-related hardware, software, and services sales) totaled $17.9B in 2015 (up 7% Y/Y), and the company could provide Splunk with a massive army of sales, consulting, and IT personnel to sell and deploy the company's offerings.
- Splunk's current partner list includes Accenture, Cisco, Juniper, NTT, Palo Alto Networks, and VMware. Shares are moderately outpacing the Nasdaq's 2% gain.
Thu, Jan. 21, 11:12 AM
- Less than 24 hours after Fortune reported IBM (IBM +1.7%) is in talks to buy live video streaming/delivery platform Ustream, IBM has confirmed the deal. As usual for IBM acquisitions, terms are undisclosed.
- IBM: "[Ustream] streams live and on-demand video to about 80 million viewers per month for customers such as NASA, Samsung, Facebook, Nike and The Discovery Channel ... IBM will deliver a powerful portfolio of video services that spans open API development, digital and visual analytics, simplified management and consistent delivery across global industries." The company also talks up the Ustream Development Platform (lets clients create custom video apps) and Ustream's social sentiment analytics services (used to gauge audience reactions to streams).
- Assets from Ustream will be added to a new Cloud Video Services unit that also features assets from recently-acquired Clearleap (provides video streaming, encoding, management, and monetization services), technologies obtained from the acquisitions of Cleversafe (object storage systems) and Aspera (high-speed file transfer software), and "IBM R&D innovations."
- The Ustream and Clearleap purchases follow public cloud rival Amazon's purchase of major video encoding/delivery software and services provider Elemental Technologies. Brightcove (BCOV +0.7%) is a notable independent player in the video streaming/monetization space.
- With the help of higher markets (the S&P is up 1.1%), IBM is bouncing a day after falling sharply in the wake of its Q4 report and light 2016 guidance.
- Prior IBM coverage
- Update: Bloomberg and the WSJ report IBM paid $130M for Ustream. Fortune previously reported of an acquisition price of $130M in cash + earn-out and retention payments.
Wed, Jan. 20, 3:26 PM
- Three months ago, IBM (IBM -4.6%) fell towards $140 after providing a 2015 EPS guidance cut to go with mixed Q3 results. Today, shares are almost $20 lower as markets react to the light 2016 guidance - EPS of "at least" $13.50, free cash flow of ~$11B-$12B vs. 2015's $13.1B - issued with Big Blue's slight Q4 beat. The S&P is down 0.5%, and the Nasdaq up 0.5%.
- Plenty of analyst have (unsurprisingly) cut their targets, but none have downgraded. Aside from forex pressures (expected to hurt 2016 EPS by over $1 as hedges roll off), plenty of concerns have been voiced about IBM's software ops, which were responsible for 46% of the company's 2015 segment op. profit ($9.1B out of $19.7B) and have been hurt by weak deal activity among top-250 clients.
- Jefferies' James Kisner (Underperform, $110 target) argues IBM still faces a tough transition as on-premise software and IT services demand continues to be pressured by SaaS/cloud adoption. He also estimates Q4 EPS would've been $4.54 (below a $4.81 consensus) if not for a lower tax rate, and states services signings of $16.7B fell short of a $19.1B consensus.
- RBC's Amit Daryanani (Neutral, $135 target): "Based on tepid EPS/[free cash flow] guide and continued software declines, and System-Z entering the end of the mainframe cycle, we continue to stand on the sidelines." Drexel Hamilton's Brian White (Buy, $160 target) remains bullish, calling EPS guidance conservative and talking up IBM's 4.1% dividend yield.
- Separately, Fortune reports IBM is in advanced talks to buy Ustream, a provider of live video streaming, transcoding, and delivery services for businesses, for $130M in cash + possible earn-out/retention payments. The report follows IBM's December acquisition of cloud video infrastructure service provider Clearleap, which the company plans to integrate with its existing cloud offerings.
- Fortune notes IBM and Ustream are already partners, with Ustream's offerings already integrated with IBM's Bluemix cloud app development platform. The startup's customers include Sony and NASA.
- Prior IBM coverage, earnings call transcript
Wed, Jan. 20, 11:47 AM
- Tech large-caps aren't being spared as the Nasdaq drops 2.6%, and the S&P 2.7%, in the market's latest plunge. A slew of companies with $10B+ market caps are seeing declines that on many recent days were largely reserved for smaller ex-momentum plays.
- The casualty list includes Alibaba (BABA -5.3%), and that of course means Yahoo (YHOO -6%) is along for the ride. Top Alibaba rival JD.com (JD -6.2%) is also down strongly; Chinese macro fears continue to run high.
- Facebook (FB -4.9%), which (unlike most peers) remains well above where it traded 12 months ago, has fallen towards $90. Q4 results arrive on Jan. 27.
- Cisco (CSCO -5.2%) has fallen below $23. Possibly weighing: Piper's Troy Jensen has reported weak Q4 networking reseller survey results, and predicts Cisco will issue light FQ3 (April quarter) guidance next month with its FQ2 report. His FQ3 sales estimate has been cut by $400M to $11.9B (below a $12.07B consensus).
- DRAM/NAND flash maker Micron (MU -10.3%) is among the biggest decliners, with shares falling into the single digits. Micron now trades for 6.6x an FY17 (ends Aug. '17) EPS consensus of $1.48. Online payments leader PayPal (PYPL -4.4%) is having a rough day as well.
- IBM (IBM -4.7%), meanwhile, has made new multi-year lows after providing soft 2016 EPS guidance to go with a slight Q4 beat. Netflix (NFLX -6%) has sold off in spite of reporting strong Q4 subscriber adds.
Wed, Jan. 20, 9:13 AM
Tue, Jan. 19, 5:42 PM
- IBM has guided on its Q4 earnings call (webcast) for 2016 EPS of "at least" $13.50. Consensus is at $15.00.
- Forex is expected to have an even larger impact on 2016 results than on 2015 results, thanks partly to the rolloff of forex hedges. Big Blue also notes software sales have been pressured by delayed signings for large deals and mix changes.
- IBM has dropped to $122.90 after hours, falling to its lowest levels since 2010 along the way.
- IBM's Q4 results, Q4 details
Tue, Jan. 19, 4:57 PM
- Low tax rates continuing providing IBM an EPS lift: Big Blue's Q4 non-GAAP tax rate was 14.7%, down from 21.8% a year ago thanks to "current period discrete items."
- Also helping: SG&A spend fell 15% Y/Y to $5.2B, thanks to a mixture of job cuts, asset sales, and forex. R&D spend rose 3% to $1.4B. Gross margin fell 120 bps to 52.7%.
- Segment performance: Global Tech Services revenue -7.1% Y/Y to $8.1B; op. profit +4.5% to $1.5B. Global Business Services -9.9% to $4.3B; op. profit -8.6% to $4.3B. Software -10.7% to $6.8B; op. profit -21.4% to $3B. Hardware -1.4% to $2.4B; op. profit -10.1% to $349M. Global Financing -14.6% to $454M; op. profit +28.3% to $674M.
- Geographic performance: Americas revenue -8% Y/Y to $10.3B. EMEA -9% to $7.3B. Asia-Pac -10% to $4.4B. BRIC markets down 21%. Forex had a 700 bps impact on revenue growth (-9% vs. -2%).
- Other details: 1) The quarter-ending services backlog was down $7B Y/Y to $121B; it was up 1% adjusting for forex. 2) "Strategic imperatives" (cloud, analytics, mobile, social, and security) revenue growth slowed to 10% Y/Y from Q3's 17%. For 2015, strategic imperatives were 35% of total revenue. 3) "Cloud delivered as a service" revenue rose 50% in 2015 to $4.5B, and analytics revenue 7% to $17.9B. 4) Middleware revenue fell 10% in Q4 to $4.9B. 5) Mainframe revenue (boosted by upgrade cycle) +16% in Q4; Power systems +4%; storage -11%.
- Financials: $764M was spent on buybacks in Q4, bringing the full-year total to $4.6B. 2015 free cash flow was $13.1B, up $700M Y/Y. IBM ended Q4 with $8.2B in cash, and $12.7B in non-Global Financing debt.
- IBM -0.7% after hours to $127.20.
- IBM's Q4 results, earnings release
Tue, Jan. 19, 4:10 PM
Mon, Jan. 18, 5:35 PM
Fri, Jan. 15, 9:45 AM
- Continuing its analytics-related acquisition spree, IBM (IBM -2%) has bought IRIS Analytics, a German provider of software for detecting payment fraud in real-time, investigating fraud cases, and modeling/simulating a company's response to a fraud event. Terms are undisclosed.
- IBM: "IRIS provides a real-time fraud analytics engine that leverages machine learning to generate rapid anti-fraud models while also supporting the creation and modification of ad-hoc models, proven successful on various sized payment platforms ... IRIS serves to bridge the gap between expert-driven rules and traditional predictive modeling by applying artificial intelligence and cognitive techniques to partner with human experts in suggesting best fit analytics interactively, while testing and deploying models with real production data, as it happens and without downtime."
- Big Blue adds IRIS is used by "leading banks and payment processors throughout the world," and allows fraud countermeasures to be deployed faster than existing techniques relying on "black box" models. The purchase follows IBM's 2013 acquisition of malware-protection software firm Trusteer (used by many top banks), and its 2011 purchase of security analytics firm i2 (used by law enforcement agencies and companies to detect illicit activity within operational log data).
- IBM is lower on a morning the S&P is down 2.3%, and the Nasdaq 2.7%. Q4 results arrive on Tuesday afternoon.
- Recent IBM acquisitions
Mon, Jan. 4, 9:03 AM| Mon, Jan. 4, 9:03 AM | 2 Comments
- December monthly performance was: -1.18%
- 52-week performance vs. the S&P 500 is: -1%
- $0.10 in dividends were paid in December
- Top 10 Holdings as of 11/30/2015: Exxon Mobil Corporation (XOM): 4.98%, Microsoft Corp (MSFT): 4.49%, Apple Inc (AAPL): 4.18%, Altria Group Inc (MO): 3.37%, McDonald's Corp (MCD): 2.94%, PepsiCo Inc (PEP): 2.93%, Home Depot Inc (HD): 2.4%, Intel Corp (INTC): 2.31%, International Business Machines Corp (IBM): 2.02%, AbbVie Inc (ABBV): 1.96%
Dec. 31, 2015, 7:03 PM
- Cisco (NASDAQ:CSCO) could make a bid for storage array vendor NetApp (NASDAQ:NTAP) and threat-prevention hardware/software provider FireEye (NASDAQ:FEYE) in 2016, thinks FBR's Dan Ives. Cisco/NetApp speculation has been around for a while. Meanwhile, Cisco has made several security acquisitions in recent years, and appears to be up for more, but has also launched products that compete with FireEye.
- Ives also thinks IBM could bid for machine/log data analytics software leader Splunk (NASDAQ:SPLK) and business intelligence/data visualization software firm QLIK. With a $7.6B market cap and high multiples, Splunk would be a costlier acquisition than IBM's traditional fare.
- HP Enterprise (NYSE:HPE), meanwhile, is seen as a potential suitor for both Qlik and enterprise cloud storage/file-sharing leader BOX. And Oracle (NYSE:ORCL) a potential buyer of cloud ERP, HR, and e-commerce software firm NetSuite (NYSE:N). Larry Ellison owns a large stake in NetSuite (more SMB-focused than Oracle), and the company both competes and partners with Oracle.
- Microsoft (NASDAQ:MSFT), which has made plenty of acquisitions in the Satya Nadella era, is seen as a potential buyer of database security software and Web app firewall vendor Imperva (NYSE:IMPV), as well as of cloud vulnerability management and compliance software firm Qualys (NASDAQ:QLYS). Symantec (NASDAQ:SYMC), which has signaled it will make security acquisitions after the sale of its Veritas unit closes, is considered a possible acquirer of e-mail/compliance security software provider Proofpoint (NASDAQ:PFPT).
- Yesterday: FBR sees improving cybersecurity spend, likes several stocks
Dec. 29, 2015, 4:59 AM
- Two of the world's largest technology firms, IBM and Microsoft (NASDAQ:MSFT), are vying to tap the fast-growing market for forecasting air quality in China.
- Bouts of smog enveloping Beijing already prompted authorities to declare two unprecedented "red alerts" this month, and while prediction technology won't be able to make the air better, it could be a step toward helping the city's 22M people to live with it.
- IBM and Microsoft's advances in "cognitive computing" can provide predictions for the air quality index up to 10 days in advance using data on weather, traffic and factory use.
Dec. 18, 2015, 12:41 PM
- Box's (BOX +0.1%) partnership with IBM (first announced in June) has been expanded to feature "stronger go-to-market and sales commitments." In addition, the deal's lifespan now "has the potential to last for a decade or more."
- Box integration is now provided for IBM's Case Manager and Datacap (image information extraction) software. Box and IBM previously announced Box would be integrated with Big Blue's content management, enterprise social networking, and records management/e-discovery software, as well as with the cloud-based Watson Analytics platform and IBM's MobileFirst iOS apps.
- The IBM expansion follows a deal to tightly integrate Box's platform with Salesforce's cloud CRM apps and App Cloud platform.
Dec. 17, 2015, 4:50 PM
- Once the deal closes, IBM will deliver the manged app/hosting services currently provided by AT&T. The offerings will be "aligned" with IBM's cloud services portfolio.
- No details have been given yet about the deal's revenue impact, or about how much (if any) money is changing hands. It follows a Q3 in which IBM's global tech services revenue fell 10% Y/Y to $7.9B, and its global business services revenue 13% to $4.2B, amid cloud and forex pressures. The company is already a notable player in the managed app and hosting markets; its SoftLayer unit participates in the latter.
- Within its Business Solutions segment, AT&T's fixed strategic services revenue (has included hosting, Ethernet, cloud, VPN, and security services) rose 12.6% Y/Y in Q3 to $2.76B. That helped offset an 8.7% drop in legacy voice/data service revenue to $4.5B.
International Business Machines Corp. is an information technology company, which provides integrated solutions that leverage information technology and knowledge of business processes. The company operates its business through five segments: Global Technology Services, Global Business Services,... More
Industry: Diversified Computer Systems
Country: United States
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