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
Dec. 8, 2015, 3:18 PM
- It's been a rough run for value stocks over the past few years, but the metric used to determine value - price/book - may not be the right one, says Citi's Robert Buckland. Free-cash-flow yield is better, he argues. noting this metric tracked traditional value in the 1990s and 2000s, but has easily outperformed over the past decade.
- It's a sign of the times, he says, as FCF is a "capex-suspicious metric," and investors are concerned about the economic outlook, and cynical about capital allocation decisions of managements.
- The list of 28 U.S. value (as defined by FCF yield) plays: BHI, VIAB, WFM, ANTM, HPQ, ABC, LBTYA, M, AAPL, CTL, XRX, LYB, CMI, ETN, MRK, VLO, CSCO, WRK, IBM, LVS, ESRX, IP, CAH, ADM, INTC, CAT, ABBV, EMN
Dec. 8, 2015, 10:30 AM
- Clearleap provides a cloud-based platform for encoding, streaming, managing, and monetizing video content to clients such as HBO, A+E Networks, Verizon, Time Warner Cable, and BBC America. Acquisition-hungry IBM (IBM -1.3%) has bought the company for an undisclosed sum.
- Big Blue will integrate Clearleap with its existing cloud offerings "to provide enterprises with a fast and easy way to manage, monetize and grow user video experiences and deliver them securely over the Web and mobile devices" It adds Clearleap's open API framework allows video to be easily embedded into applications, as well as be integrated with existing workflows and analytics software.
- Clearleap's services will be offered via IBM data centers, and its APIs added to IBM's Bluemix cloud app platform (PaaS) in 2016. The acquisition follows the October purchase of Cleversafe, whose object storage hardware and software is often used to handle video storage.
- Other recent IBM acquisitions
Dec. 1, 2015, 9:27 AM| Dec. 1, 2015, 9:27 AM
- November monthly performance was: +0.59%
- 52-week performance vs. the S&P 500 is: -1%
- $0.06 in dividends were paid in November
- Top 10 Holdings as of 10/30/2015: Exxon Mobil Corporation (XOM): 5.02%, Microsoft Corp (MSFT): 4.33%, Apple Inc (AAPL): 4.2%, Altria Group Inc (MO): 3.52%, PepsiCo Inc (PEP): 2.97%, McDonald's Corp (MCD): 2.88%, Intel Corp (INTC): 2.24%, Home Depot Inc (HD): 2.2%, International Business Machines Corp (IBM): 2.03%, AbbVie Inc (ABBV): 2.0%
Nov. 19, 2015, 3:29 PM
- Germany's WirtschaftsWoche reports (quoting an IBM union rep) IBM (IBM +0.8%) is thinking of laying off up to 3K German workers, or 18% of its local workforce, over the next two years.
- A German trade union believes 2,500 of the layoffs are "relatively fixed," with another 500 possible if conditions deteriorate. 1,000-1,200 of the layoffs are expected to come from IBM's slumping consulting and outsourcing ops, which have been pressured by (among other things) cloud services adoption.
- Big Blue had a global headcount of 379,592 at the end of 2014, down by over 51K from a year earlier. 38K of the lost jobs stemmed from asset sales such as Lenovo's purchase of IBM's x86 server unit. SG&A spend was down 10.4% Y/Y in Q3 due to job cuts, asset sales, and forex, and R&D spend down 4.9%.
Nov. 16, 2015, 3:40 PM
- IBM (IBM +1.5%) is partnering with FPGA chipmaker Xilinx (XLNX +1%) to provide servers based on its OpenPower platform (uses IBM Power CPUs, features servers from both IBM and third parties) in which Xilinx FPGAs power programmable accelerators for workloads such as high-performance computing (HPC), analytics, machine learning, and genomics.
- As part of the tie-up, IBM will create "solution stacks" consisting of Power-based server, storage, and middleware systems using Xilinx acceerators, and also develop and qualify Xilinx accelerator cards for Power-based systems. The alliance comes as Intel, whose Xeon CPUs have been steadily taking share from IBM's Power line, gets set to acquire Xilinx archrival Altera, with plans to offer integrated CPU/FPGA solutions for workload acceleration. In addition to IBM, Xilinx has partnered with Qualcomm, one of several chipmakers going after the budding ARM server CPU market.
- Also: 1) IBM claims using Power servers featuring Nvidia's (NASDAQ:NVDA) Tesla K80 GPU-based accelerators can deliver up to a 70% performance boost for certain Watson APIs, and increase its processing power up to 10x. 2) OEMs E4 Computer Engineering and Penguin Computing have unveiled new OpenPower servers. They run on IBM's high-end Power8 CPU and feature Tesla accelerators.
- The announcements come amid the supercomputer industry's SC15 conference. The first OpenPower servers became available earlier this year, via Taiwanese OEM Tyan. IBM's Power systems revenue fell 3% Y/Y in Q3, a smaller decline than in many recent quarters.
Nov. 4, 2015, 1:49 PM
- "Oh yeah, I love Amazon (AMZN +2.7%). Because they're investing in their future. [Jeff] Bezos is a serial monopolist," said famed hedge fund manager Stanley Druckenmiller at a Tuesday conference talk.
- Druckenmiller, who has been bearish on IBM for some time: "The last 19 quarters, Amazon has missed their quarterly earnings nine times. They don't give a damn ... IBM has missed three quarters since 2006. They really care about their quarterly earnings." (10-year chart of Amazon and IBM)
- He also once more praised AWS, which had revenue of $6.9B (+65% Y/Y) over the 12 months ending in September. "If you're starting a business today, you don't need a tech department, you don't need a back office, you can use AWS. By the way, it's just ripping to shreds the 10 or 15 consultants from IBM ... that you used to need, but you don't need because now you go into cloud."
- Amazon has made fresh highs. Shares are up 14% since the company's Oct. 22 Q3 beat, and up 107% YTD.
Nov. 3, 2015, 1:48 PM
- Gravitant provides software that helps enterprises compare and analyze the cloud services offerings of various providers, and subsequently purchase and manage/monitor those services. IBM (IBM +1.6%) has bought the company for an undisclosed sum.
- IBM exec Martin Jetter, whose company has been selling enterprises on adopting its SoftLayer, Watson Analytics, and Bluemix cloud platforms (among others): "The reality of enterprise IT is that it is many clouds with many characteristics, whether they be economic, capacity or security. Gravitant provides an innovative approach to add choice and simplicity to how enterprises can now manage their environments." Gravitant will be integrated with IBM's Global Tech Services unit, and also with its SaaS (cloud app) lineup.
- The purchase follows last week's deal to buy The Weather Company's digital assets (reportedly for $2B+). Other 2015 cloud-related acquisitions include Workday service provider Meteorix and OpenStack managed cloud service provider Blue Box.
Oct. 28, 2015, 10:40 AM
- Confirming yesterday evening's WSJ report, IBM (IBM +2.2%) states it's buying The Weather Company's B2B, mobile, and cloud-based Web properties, including Weather.com and Weather Underground, Terms are undisclosed; the WSJ reported of a $2B+ purchase price.
- IBM suggests the value of The Weather Co.'s cloud data platform goes well beyond weather, and will bolster both its Watson Cloud platform and a new Watson IoT unit that will provide A.I.-driven analytics services for data produced by Web-connected embedded devices.
- IBM: "The Weather Company's cloud-based data platform will allow IBM to collect an even larger variety and higher velocity of global data sets, store them, analyze them and in turn distribute them and empower richer and deeper insights across the Watson platform ... The Weather Company's mobile and web properties handle seven times the volume of the world's leading search engine, while serving 82 million unique monthly visitors ... [The platform] can ingest a wide range of data at massive speed and scale, supporting an incredible volume of queries at very low latency."
- At the same time, IBM argues weather-related analytics is a major opportunity by itself, given weather's impact on global GDP. It notes The Weather Co.'s models "analyze data from three billion weather forecast reference points, more than 40 million smartphones, and 50,000 airplane flights per day," helping it service "more than 5,000 clients in the media, aviation, energy, insurance and government industries."
- In August, IBM struck a $1B deal to buy medical imaging software firm Merge Healthcare, with plans to integrate merge with its new Watson Health unit and deliver image analytics services. An IoT-related analytics partnership was formed with CPU core giant ARM in September.
- Shares are recovering some of the Tuesday losses seen following an SEC probe disclosure.
- Update: Forrester's Ted Schadler offers some thoughts on IBM's motivations for making the deal. "[B]usinesses need insights services injected into their real-time processes and applications. TWC gives IBM a hugely valuable and differentiated source of data and insights that it can pre-integrate with other major sources, including Twitter sentiment insights and Box's document market. By pre-integrating these data, building predictive and cognitive models on them, and blending them with your data, IBM is in a position to deliver differentiated insights services."
Oct. 27, 2015, 8:28 PM
- IBM is nearing a deal in excess of $2B to acquire the digital and data assets of The Weather Co., owner of the Weather Channel, The Wall Street Journal is reporting.
- The company -- owned in part by NBCUniversal (NASDAQ:CMCSA) along with Bain Capital and Blackstone (NYSE:BX) -- started hiring banks to seek a buyer in August for a deal it hoped would hit $3B. The company's digital bits were widely considered to be the most valuable.
- IBM has a particular interest in the company's forecasting group, WSI, the WSJ says -- a unit that's chock full of tech and weather data that the Weather Co. licenses to various businesses.
- The deal would reportedly come with Weather Co. CEO David Kenny, who would join IBM.
- A $2B deal would be a discount over the company's 2008 sale price, valued at $3.5B. IBM shares fell 4.1% today.
- Previously: IBM eyes digital assets of The Weather Company (Oct. 19 2015)
- Previously: Weather Channel hires banks to explore sale for up to $3B (Aug. 20 2015)
Oct. 27, 2015, 2:16 PM
- Buried within IBM's just-filed Q3 10-Q: "In August 2015, IBM learned that the SEC is conducting an investigation relating to revenue recognition with respect to the accounting treatment of certain transactions in the U.S., U.K. and Ireland. The company is cooperating with the SEC in this matter."
- IBM has already been cooperating with the SEC and other agencies on corruption-related probes. The SEC ended an investigation into IBM's cloud revenue reporting last year.
- Shares have sold off following Big Blue's disclosure.
- Earlier: IBM adds $4B to buyback, declares quarterly dividend
Oct. 27, 2015, 11:47 AM
- IBM (IBM -1.1%) has hiked its buyback authorization by $4B to $6.4B. That's good for repurchasing 4.6% of shares at current levels. $5B was added to IBM's buyback a year ago.
- Big Blue has also declared its regular quarterly dividend of $1.30/share (3.6% yield). The next dividend is payable on Dec. 10 to stockholders on record as of Nov. 10.
- IBM spent $1.5B on buybacks in Q3. The latest hike comes after shares fell to 5-year lows in the wake of IBM's mixed Q3 results and 2015 guidance cut.
Oct. 20, 2015, 1:04 PM
- IBM (IBM -5.8%) is at its lowest levels since 2010 after providing a 2015 EPS guidance cut to go with mixed Q3 results, and reporting continued top-line pressures in many key businesses. A slew of firms have cut their targets, but none have downgraded.
- On the earnings call (transcript), CFO Martin Schroeter stated Q3 sales were pressured by a longer-than-expected "transformation" timeframe for Global Business Services (GBS) "as the market shifts away from some of the more traditional application areas" (due to cloud adoption?), as well as weak storage demand amid growing industry adoption of flash arrays - that's potentially a positive for newly-public flash array vendor/IBM rival Pure Storage (PSTG +2.4%).
- Schroeter also mentioned transactional software revenue weakened towards the end of Q3, and that both GBS and transactional challenges will weigh on Q4. GBS revenue fell 13% Y/Y in Q3, storage revenue 19%, and software revenue 10%. Excluding forex, the declines were 5%, 14%, and 3% (suggestive of moderate share loss). Software accounted for 43% of IBM's Q3 op. profit.
- Stifel's David Grossman (Buy, target cut by $20 to $160): "We wonder whether the significant downward revision to guidance reflects an attempt to reset the bar for next year ... We have lowered our 2015 EPS from $15.71 to $14.75 (consensus was $15.67) and 2016 from $16.36 to $15.30 (consensus $16.04), which assumes flattish revenue growth in 2016 (versus down ~1% in 2015) and pretax margin expansion of 60bp (versus down 100bp in 2015). It will be difficult to grow [free cash flow] in 2016 on this EPS base, which suggests the stock could remain in a trading range of high $135-$145, pending the 4Q report."
- Bernstein's Toni Sacconaghi (Market Perform, target cut by $10 to $140) thinks 2016 could be even tougher than 2015, given a declining services backlog, the rolloff of currency hedges, a lack of a mainframe/Power system upgrade cycle, lower "non-operating gains," and ongoing strategic investments. He sees EPS dropping to $14.30 in 2016 - revised 2015 guidance is at $14.75-$15.75 - with cash flow "potentially declining more moderately than EPS."
- Prior IBM coverage, SA IBM earnings analysis
Oct. 19, 2015, 5:39 PM
Oct. 19, 2015, 4:36 PM
- Helping IBM beat Q3 EPS estimates in spite of a revenue miss: The company had a non-GAAP tax rate of 18%, up slightly from Q2's also depressed 17.2% but down from 20.8% a year ago.
- Also helping: 1) SG&A spend fell 10% Y/Y to $4.7B thanks to job cuts and forex, and R&D spend fell 5% to $1.3B. 2) Gross margin from continuing ops rose 80 bps Y/Y to 50%. 3) $1.5B was spent on buybacks.
- Free cash flow rose 18% Y/Y to $2.6B. However, IBM now expects 2015 FCF to be "relatively flat" compared with 2014's $12.4B. It guided in July for a "modest increase."
- Segment performance: Global Tech Services revenue -10% Y/Y to $7.9B; op. profit -22% to $1.3B. Global Business Services revenue -13% to $4.2B; op. profit -22% to $673M. Software revenue -10% to $5.1B; op. profit -19% to $1.9B. Hardware revenue (hurt by the x86 server unit sale) -39% to $1.5B; the business had a $24M op. loss. Global Financing revenue -8% to $447M; op. profit +18% to $562M. Forex had a 9% impact on total revenue growth, and the x86 sale a 4% impact.
- Geographic performance: Americas revenue -10% Y/Y to $9.1B. EMEA -16% to $6.1B. Asia-Pac -19% to $4.1B.
- Other details: 1) The quarter-ending services backlog fell by $4B Q/Q and $10B Y/Y to $118B. 2) Revenue from BRIC markets fell 30% Y/Y (7% exc. forex and the x86 sale). 3) Middleware revenue -7%, mainframes (boosted by upgrade cycle) +15%, Power systems -3%, storage -19% (share loss). 4) "Cloud delivered as a service" revenue" is on a $4.5B/year run rate, the same as Q2 and up from $3.1B a year ago. 5) Analytics revenue rose 9%, and total "strategic imperatives" revenue (cloud, security, analytics, mobile) 17%.
- IBM ended Q3 with $9.6B in cash and $13.7B in non-Global Financing debt.
- IBM -4% after hours to $143.24. Earnings call at 5PM ET (webcast).
- IBM's Q3 results/guidance cut, PR
Oct. 19, 2015, 4:07 PM
- International Business Machines (NYSE:IBM): Q3 EPS of $3.34 beats by $0.04.
- Revenue of $19.28B (-13.9% Y/Y) misses by $340M.
- Cuts 2015 EPS guidance to $14.75-$15.75 from prior $15.75-$16.50. Consensus is at $15.68.
- Shares -3.7% after hours.
Oct. 18, 2015, 5:35 PM
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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