Oct. 21, 2014, 10:54 AM
- Evercore has downgraded IBM (IBM -4.2%) to Hold a day after the company missed Q3 estimates, offered light full-year guidance, pulled its 2015 EPS target, and reported a 7% Y/Y services backlog drop. Not surprisingly, many other firms have cut their targets.
- Credit Suisse's Kulbinder Garcha, bearish for some time, has slashed his target by $35 to $125. Though calling the resetting of expectations a positive and noting a mainframe upgrade cycle is on the way, Garcha argues IBM "continues to face multiple issues to revenue growth including high mainframe exposure, negative cloud impact and weak IT spending."
- BofA/Merrill's Wamsi Mohan tries to find a silver lining. "In our opinion, the reset in expectations provides an opportunity for IBM to redefine the broader strategy without the rigidity of near term targets. We expect a detailed business strategy update at the Analyst day in 2015 but near term headwinds will likely keep the stock range bound and we remain Neutral."
- The WSJ observes IBM could lose its status as one of the S&P 500's 20 most valuable companies for the first time in history.
- Yesterday's earnings coverage
Oct. 20, 2014, 12:03 PM
- After badly missing Q3 EPS estimates (in spite of backing out the losses of its soon-to-be-sold chip unit), IBM (IBM -6.7%) guided on its Q3 CC for 2014 EPS from continuing ops. to be down 2%-4% Y/Y. That implies a range of $15.97-$16.30, soundly below a $17.87 consensus.
- Big Blue also says it took a $3.3B Q3 post-tax charge related to the chip business; the figure includes the $1.5B payment to Globalfoundries.
- During a CNBC interview, CEO Ginny Rometty suggested fresh layoffs are on tap. The company recorded a $1B workforce rebalancing charge back in Q1; its headcount was at 431K at the end of 2013.
- IBM's closely-watched services backlog fell 7% Y/Y in Q3 to $128B, a much sharper drop than Q2's 1%; the company declares it saw "insufficient" services productivity. Also worrying investors: Gross margin fell 90 bps to 49.2%, ending a long string of Y/Y gains.
- Other pressures on EPS: 1) The non-GAAP tax rate rose 80 bps Q/Q and 320 bps Y/Y to 20.8%. 2) Buybacks fell to $1.7B from Q2's $3.7B. 3) Opex for continuing ops rose 2% Y/Y, while revenue from continuing ops fell 4% (helps explain the job cut talk).
- Hardware revenue (excludes chips) -15% Y/Y; software -2%; global tech services -3%; global business services -2%; financing -3%. Within hardware: Mainframes -35%; Power systems -12%; x86 servers (just sold to Lenovo) -10%; storage -6%.
- Two strong points: "Cloud delivered as a service" revenue is up over 80% YTD ($3.1B/year run rate), and security revenue is up over 20% YTD.
- Americas revenue -2%; EMEA -2%; Asia-Pac -9%. "Growth markets" -6%, with BRIC countries down 7%.
- Free cash flow ($2.2B) was once more well below net income ($3.7B). IBM ended Q3 with $9.6B in cash, and $17.1B in non-financing debt.
- Q3 results, details, PR
Oct. 20, 2014, 9:21 AM
Oct. 20, 2014, 7:30 AM
- "We are disappointed in our performance," says CEO Ginni Rometty. "We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry."
- Non-GAAP operating income from continuing operations (excludes semiconductor business whose acquisition by Globalfoundries was announced today) of $3.7B is off 18%; operating EPS of $3.68 is lower by 10%. Gross profit margin of 49.2% down 90 basis points.
- Guidance will be discussed further in the 8AM ET conference call, but the presentation slides say the company no longer expects to deliver at least $20 in operating EPS in 2015.
- More from Rometty: "We again performed well in our strategic growth areas cloud, data and analytics, security, social and mobile - where we continue to shift our business. We will accelerate this transformation."
- IBM -8% premarket
- Previously: International Business Machines misses on revenue
Oct. 20, 2014, 7:09 AM
- International Business Machines (NYSE:IBM): Q3 EPS of $3.68 misses by $0.64.
- Revenue of $22.4B (-4.0% Y/Y) misses by $970M.
- Shares +1% PM.
- Press Release
- Previously: Globalfoundries to take control of IBM's semiconductor operations
Oct. 20, 2014, 1:40 AM
- IBM (NYSE:IBM) has reached an agreement with Globalfoundries to take over its loss-making semiconductor unit, WSJ reports.
- Under the terms of the deal, IBM will pay Globalfoundries $1.5B to take the chip operations off its hands, a source says.
- IBM is scheduled to report Q3 earnings premarket.
- Previously: IBM to make 'major announcement,' release earnings Monday morning
Oct. 19, 2014, 5:59 PM
Oct. 19, 2014, 5:30 PM
Oct. 14, 2014, 2:31 PM
- IBM's (IBM +0.5%) SoftLayer unit has been added to the list of cloud infrastructure (IaaS) providers supporting SAP's (SAP +0.7%) Hana Enterprise Cloud platform, which delivers SAP cloud apps (including the core SAP Business Suite) running on top of the company's Hana in-memory database.
- SAP already offers Hana Enterprise Cloud through its own data centers. The company also supports Hana use by 3rd-party cloud app developers, both through its own Hana Cloud platform and Amazon Web Services.
- An SAP exec talks up the geographic reach of IBM's data centers, and its ability to address security concerns. "A lot of our customers are concerned about data sovereignty and privacy controls. IBM was the obvious choice to help us address that."
- In January, IBM announced plans to build 15 new data centers to expand its cloud reach. Amazon and Microsoft have also been growing their global data center footprints.
- Separately, SAP has struck an OEM and managed cloud services deal with Unisys (UIS +1.1%). Unisys will offer Hana-based "bundled data analytics solutions" running on its Forward high-end server platform, as well as Hana-based analytics services "hosted in a Unisys- or partner-managed data center through a pay-for-use subscription." The services are initially aimed at U.S. federal clients.
Oct. 10, 2014, 2:00 PM
- "We think IBM (IBM +0.5%) will continue to be a critically important IT company long-term due to its deep R&D investments, but we think the company faces a period of market transition," says Jefferies' James Kisner, launching coverage on Big Blue (as part of a sector launch) with an Underperform rating and $163 target.
- Like many other analysts, Kisner is worried about the impact of the cloud transition - both the adoption of cloud/SaaS apps and public cloud infrastructure services (often running on white-label hardware). He also highlights a broader shift in IT spend from "legacy" vendors as investments are made in "growth initiatives."
- In addition, Kisner echoes sell-side concerns about IBM's earnings quality: He thinks the company is respectively too dependent on vendor financing and buybacks for sales and EPS growth, and notes free cash flow has trailed net income.
- In spite of the launch, IBM is up modestly on a down day for tech. Q3 results are due on Oct. 20.
Sep. 29, 2014, 2:00 AM
- Lenovo (OTCPK:LNVGY) will complete its $2.1B acquisition of IBM's (NYSE:IBM) x86 server unit on Oct. 1, giving China's biggest personal computer maker a major asset to expand its business client offerings.
- The closing purchase price is lower than the $2.3B valuation announced in January because of a change in the valuation of inventory and deferred revenue liability, says Lenovo.
Sep. 26, 2014, 6:55 PM
- The cloud-based Watson Analytics service (recently launched) is aimed not only at IBM's mainstay enterprise clients, but also SMBs worried about the costs of an in-house analytics infrastructure. "Large companies are further along in adopting analytics, while SMBs are falling behind," says IBM exec John Mason.
- With an official goal of putting "powerful analytics in the hands of every business user," IBM has furnished Watson Analytics with a number of self-service tools that can be handled by non-technical users, and the ability to quickly integrate with popular business apps from the likes of Salesforce, Oracle, and Google.
- Big Blue has also opted for a freemium pricing model: Users can do basic data analysis for free, but have to pay if they want more advanced features. IBM is aiming for its broader Watson business to produce $10B/year in sales in 10 years; it reportedly produced only $100M as of Oct. 2013.
- Meanwhile, IBM's SoftLayer cloud infrastructure (IaaS) unit is intent on making further inroads with startups, a demographic that historically hasn't been an avid consumer of IBM's wares.
- Though Amazon has an outsized IaaS share among startups, SoftLayer has made some progress with the help of features such as bare metal server support and free private networking between data centers. SoftLayer has especially fared well with gaming startups.
Sep. 11, 2014, 7:08 PM
- After moving back above the $100/share level, Apple (NASDAQ:AAPL) is back over the $600B mark in market cap, pushing it nearly $200B above Exxon Mobil (NYSE:XOM), the next largest company in the U.S.
- XOM is still valued at more than $400B, but Google (NASDAQ:GOOG) at $397B and Microsoft (NASDAQ:MSFT) - which has surged in 2014, adding $74B in market cap to $386B - are closing the gap.
- Berkshire Hathaway (NYSE:BRK.B) completes the top five with a $339B market cap; no other companies are worth more than $300B.
- Rounding out the top 20 market caps: JNJ, WFC, GE, WMT, CVX, PG, JPM, FB, VZ, IBM, PFE, KO, ORCL, T, MRK.
Sep. 6, 2014, 8:43 AM
- The "total" yield of a company combines the dividend yield and the buyback yield - that is the yield boost from reducing the total amount of shares outstanding. Together with S&P's Howard Silverblatt, Barron's puts together a list of the top 20 companies in the S&P 500 based on "total" yield.
- While buybacks don't guarantee a strong stock - witness consistent buyback champs like IBM and Kohl's (NYSE:KSS) - Warren Buffett goes to bed at night praying for IBM's share price to go down so the company can buy back more stock for a given dollar amount (though The Oracle has said he doesn't expect this logic to win many fans).
- The flip-side are those companies - financials and energy come to mind - who tend to buy back stock at high prices only to find themselves forced to reissue it at lower prices when times get tough. A consistent plan helps, and Travelers (NYSE:TRV), under CEO Jay Fishman, has been maybe the best example of this - halving the share count since the end of 2006.
- ETFs? The Powershares Buyback Achievers Portfolio (NYSEARCA:PKW) gained 45.6% in 2013, 1,300 basis points better than the S&P 500. Since inception in 2006, it's up an annualized 9%, more than 200 basis points better than the S&P. A newcomer - the Cambria Shareholder Yield ETF (NYSEARCA:SYLD) - has beaten the S&P by about 250 basis points since its May 2013 inception.
- The list (ranked in order of "total" yield): ADT, CAM, CF, MOS, MPC, VIAB, GLW, ITW, STX, IBM, NOC, CTL, TRV, VRSN, IR, CCE, KSS, NTAP, HES, DO.
Aug. 27, 2014, 7:21 PM
- IDC estimates global server sales rose 2.5% Y/Y in Q2 to $12.6B. That marks a turnaround from the 2.2% drop seen in Q1, and the 4.4% drop seen in Q4. Gartner estimates sales grew 2.8%.
- IDC declares the server market, hurt in recent quarters by system consolidation and a shift in demand towards the white-label gear beloved by Web giants (referred to by IDC as ODM Direct), is seeing "the beginning of a cyclical refresh cycle." It sees the pending launch of Intel's (NASDAQ:INTC) Grantley Xeon CPUs, along with Microsoft's plans to end Windows Server 2003 support, lifting sales into 2015.
- Sales of x86 servers (mostly Intel-based) rose 7.8% in Q2, and now make up 78% of industry revenue. Non-x86 server sales fell 12.8%.
- Market leader H-P's (NYSE:HPQ) share rose 40 bps Y/Y to 25.4%, with x86 growth offsetting Itanium weakness. #2 IBM's share fell 340 bps to 23.6% ahead of the sale of its x86 server ops to Lenovo; on the bright side, IBM's decline narrowed from Q1's 600 bps.
- #3 Dell's share fell 160 bps to 16.2%. #4 Oracle's (NYSE:ORCL) grew 10 bps to 5.9%, with engineered system growth offsetting declines for older UNIX/SPARC server lines. #5 Cisco (NASDAQ:CSCO), which recently proclaimed its UCS server ops are on a $3B/year run rate, saw its share rise 140 bps to 5.8% on the back of 35% growth. Cisco should pass Oracle in a quarter or two.
- ODM Direct vendors saw their share grow 110 bps to 6.6%. The shares of all other vendors rose 190 bps to 16.1%.
- Related tickers: SMCI, MLNX, QLGC, ELX
Aug. 26, 2014, 3:12 PM
- It would be Apple's (AAPL -0.4%) largest-ever iPad (current versions are 9.7" and 7.9"), and production is set to start early next year, reports Bloomberg. The move comes as sales for iPads have declined for two straight quarters, and suggests the company is going to go after enterprise customers where the larger device could replace the traditional laptop.
- Apple, of course, has partnered with IBM, and Tim Cook has said part of the rationale behind the deal was to sell to corporations as a "catalyst for future iPad growth."
- Previously: Apple/IBM deal wins praise; hardware impact debated
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