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IBM: Even Veteran Players Turn Around Eventually


  • IBM has a new CEO - finally.
  • IBM's acquisition of Red Hat was the right thing to do.
  • IBM's ever growing 5% plus dividend is another plus.
  • Looking for a helping hand in the market? Members of Turnaround Stock Advisory get exclusive ideas and guidance to navigate any climate. Get started today »

On November 5, 2018 I wrote an article on IBM (NYSE:IBM) called "No, IBM Did Not Overpay For Red Hat" and I recommended purchase. The price on that date was about $123. The price then went up and exactly 15 months later on February 5, 2020 the price peaked at $156. Add in the $7 in dividends over that period and we had a nice gain of $40 or 32% over the 15 months.

And then the world came to an end and IBM dropped briefly below $100. It now stands at $122, almost exactly the same as the November 5, 2018 price.

Here are 5 reasons to buy IBM again.

1. There's a new sheriff in town - CEO Arvind Krishna

On January 30, 2020 IBM's board announced that long-time CEO Ginni Rometty was stepping down and would be replaced by Krishna on April 6.

Krishna is currently senior VP for Cloud and Cognitive Software.

Equally as important the board also announced that former Red Hat CEO James Whitehurst would be named President.

Both these guys are leading-edge executives with huge expertise in leading-edge cloud and Linux technology. Exactly the right people for the job.

Rometty, on the other hand, was about as dynamic as an amoeba after a big lunch. She saw her mandate as holding IBM together while it spent years trying to reclaim some semblance of technical expertise. Well, if putting these two people in charge was the result, then that is a good thing. But boy, am I glad to see her go. I only wish her sterling 40-year IBM career had been a sterling 35 years instead.

2. New acquisition Red Hat will add expertise and sales to IBM's current product line including cloud

As I explained in the article referenced above, buying Red Hat

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This article was written by

Bill Zettler profile picture
Trained as a scientific programmer, I worked on war game software for NORAD (North American Air Defense) and statistical software for Abbott Labs. For most of my 40-year career developed and sold financial and accounting software. Was principal or founder of 3 small (5-30 employees) software companies. Wrote a book on public pensions and a play that won an award in Writer Digest Magazine's annual writers competition, a contest that draws over 10,000 entries a year. Currently retired.

Analyst’s Disclosure: I am/we are long IBM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (82)

@Returnofthemus "Cringely" "QQQ"

I've noticed you've mentioned both Cringley and QQQ in a number of your recent comments here and in other articles, which has piqued my interest.

Based on your numerous mentions, I take it this is your favorite IBM analyst and ETF respectively. Given this, maybe you can provide some further information on them which could benefit investors here.

Concerning Cringley, I don't follow him, but I do know that back in 2013, when IBM was at $200 and when you first started providing IBM Marketing talking points with links to IBM PR videos, Cringley correctly predicted that Watson would be a revenue generating bust and that IBM's stock price would drop considerably. I believe he also correctly said the $20 EPS Roadmap would collapse.

Given those incredible calls, which certainly helped investors who listened, I can understand why he's a favorite of yours. Since you apparently follow him closely and mention him often, what's he currently saying about IBM ?

Concerning QQQ, given your many mentions of QQQ, I decided to see how IBM has performed compared to QQQ over the years. I can now understand your fascination.

For most periods since QQQ's inception, QQQ has greatly outperformed IBM on a total return basis, including this year where QQQ is a positive +1.69%, while IBM is a negative -12.48%.

Additionally, QQQ has held up quite well during this pandemic while IBM, not so much. Since Feb 20, when the pandemic started to greatly impact the stock market, the total return of QQQ is -6.38%, while IBM is -22.44%, which trails both the SP500 and the Dow.

Digging deeper, here's the IBM & QQQ total return if $10K was invested in 2013 when you first started commenting on IBM.

IBM -23.11% $7,687
QQQ +252.18% $35,215

Wow. That's an eye-opener!

Given this performance information and the fact that you've said that you're an IBM reseller, can you provide some insight as to why IBM has so greatly underperformed since you first began providing IBM Marketing talking points with links to IBM PR videos? I think this information could be greatly beneficial to investors here.
Returnofthemus profile picture
"I've noticed you've mentioned both Cringley and QQQ"

LOL @Cringely's disciple (QQQ)

Cringely's disciple, as in a follower of the I-Gringely blog site, where many disgruntled ex-IBMers appear to congregate to vent their splines and QQQ your favourite non-tech related comparison.

On the one occasion I did visit the I-Gringely site, the only thing I read of interest was a reference to targeting ReturnoftheMus on SA in the comments section. I've been playing along ever since.

I'm also a Long-term IBM investor.

What's your excuse?

PS Its a bit late to start playing the victim
@Returnofthemus "On the one occasion I did visit the I-Gringely site, the only thing I read of interest was a reference to targeting ReturnoftheMus on SA in the comments section. I've been playing along ever since."

Do you have a link to that? I'd love to see it.

Can you explain more about the "targeting ReturnoftheMus"? When was that? What does "targeting" mean? Why do you think anyone would want to "target" you?

If you've only visited his site once, who are you "playing along" with? What does "playing along" mean?

Putting this aside, you have to admit it, as an investor, you sure would have saved yourself a lot of money if you would have listened to him. Why weren't you interested in what he had to say?

Can you revisit his site and let us know what he's saying about IBM now? I think it might be helpful to investors.

Concerning QQQ and your recent numerous referencing of it, as an investor, you have to admit that QQQ has certainly outperformed IBM. Thanks for bringing it to our attention.

As I asked before, given this performance information and the fact that you've said that you're an IBM reseller, can you provide some insight as to why IBM has so greatly underperformed since you first began providing IBM Marketing talking points with links to IBM PR videos? I think this information could be greatly beneficial to investors here.
Returnofthemus profile picture
"Do you have a link to that? I'd love to see it"

LOL @Cringely's disciple (QQQ)

Alas no, it was many moons ago, in that time I've seen off Dana Blackenhorn, Bert Hochfield and even Gringley himself has given up writing SA articles on here because of his inability to handle critism.

That said the quality of IBM articles on SA have greatly improved and are far more objective now than before, for which I take some personal credit.

Other than that I would not recommend any potential investor visit the Cringley blog, it's nothing more than a sewing circle for disgruntled ex-IBMers to bitch and moan. I find the www.nextplatform.com/... a highly credible source of up to date enterprise technology trends.

Like if told you before my IBM Business Partnership and personal investment are totally separate issues, I do not disclose anything on a public forum in a business capacity under NDA, thought we resolved that one already!

My personal opinion is that IBM was a bloated bunch of uncoordinated businesses units competing against each other, in which the left-hand never knew what the right was doing. Ginny's reign went a long way to streamlining the business and putting in place a coherent strategy, the new CEO now has to execute, given the revelation how instrumental a role he played in the Red Hat acquisition.

I too will be looking at my LONG TERM investment with a much closer 👁‍🗨 🐝 M

NOW a question for you, if I may:-

1.Why do you spend so much time posting negavity on IBM - only articles?
2.What is it you think you'll achieve?
3.Do you think you'll achieve it in your lifetime?
I m really long (10y+) IBM
But to have a strong wind in the sail getting us to 2025 is also great, it will provide sustained cashflow, and also a solid base for the what i m really bullish about IBM: cognitive and AI market, i think in the coming decade cloud business will mature and comoditze with lower margin while business inteligence and general AI and applyed AI will really start to kick off with mutliple evaluation per revenue going sky high like mobile in the 2012 and cloud lately. AI could replace as many worker as computer with word or exell did. How much would that worth for business, well look at microsoft. I can't be sure IBM will be the "one ring to rule them all" but it should be in the top 5 for sure, + looking at rjeir track record they will get there with financial discipline and returning cash to shareholder all along rather then a merger dilution style.
@Frédérick Pétrin

"I m really long (10y+) IBM"

Oh, please stop bragging! The only thing you'll accomplish by the somewhat frowned-upon act of bragging is making less fortunate investors feel bad about themselves. Insofar there are any.

As for 2025 and AI: By that time we'll be in the middle of the harshest AI winter yet surpassing the ones of 1974–1980 and 1987–1993. This time, the regular AI overhype has reached such enormous proportions that the eventual backlash will be equally epic. The good news for IBM is that it never made much money from AI anyway and will likely be able to save itself large amounts of money by not airing silly Watson commercials featuring Bob Dylan. The 2025 revenues for IBM will largely depend on the slowly-leaking-tire nature of its legacy business. In other words, business as usual. And, yeah, whoever is the CEO in 2025 will likely already have disappointed the shareholders by not having orchestrated a quick turnaround and be on his way out with a generous severance package.
Like NCR?
no comparison
Flex68 profile picture
"Even Veteran Players Turn Around Eventually"

Shall we also put Michael Jordan and Larry Bird back on the b-ball court, and see how they do against today's top players/innovators..... ?
Bill Zettler profile picture
flex, my title was "Even Oil Tankers Turn Around Eventually" but it was changed by the editors. Not sure why.
Bird and Jordan, Gronk and Brady get to see one of those duos hopefully.
globalopp profile picture
Mainframes going to cloud. It will be interesting to see how this plays out and how adoption could migrate across the financial services world. The new platform will leverage thousands of production clusters, embed compliance, data encryption, and security while utilizing the Red Hat OpenShift environment.

Nobody is going to be using mainframes in the public cloud -- it's not a viable option for doing computing at scale. If it were, hyperscale companies like Google, Facebook, and Amazon would be using them and they would be a huge growth market for IBM. But that's obviously not the case. IBM's best hope of seeing mainframes used in cloud computing is to slap a "private cloud" label on what its legacy customers are doing in their own data centers sort of the same way that it has always generated a significant portion of its cloud revenue. Officially, IBM made $21.2 billion in cloud revenue last year, a number that would put them way ahead of both Azure and Google. In reality, no one mentions IBM as a cloud player in the same breath as Azure or Google.
Returnofthemus profile picture
"Nobody is going to be using mainframes in the public cloud"

LOL @David_A

They already are https://youtu.be/QphJEO9ZX6s

IBM are chasing Hybrid cloud, NOT Public cloud, the whole reason for acquiring Red Hat, remember?

PS I guess some people still don't get it and probably never will!
A blockchain video in the middle of a mainframe discussion! How cool is that!? Although my information is that all of IBM's blockchain services will be running on quantum servers and that the infrastructure will be fully in place by the time the first real customer shows up.
Q. A. SAMAD profile picture
Always long IBM! ALWAYS!
Very surprised by IBM's patent statistics - hopefully the new management team will look into that. Either they need to make more effort to leverage those patents into products and profits, or else there's still a lot of dead wood to clear out in parts of the organisation developing patents without commercial potential.

What impressed me most from the recent earnings transcript was that the new CEO said he'd be judged by revenue growth as the number one performance indicator. I don't think he'd have said that without having a good idea that's where things will be heading. So overall I'd give the new team a cautious welcome. The real test will be whether they can really change the company's culture.
IBM does generate revenue from the patents in the form of intellectual property licensing fees that are typically on the order of a billion per year. For years, IBM has gone after other companies demanding payments for real or imagined infringements of its vast patent portfolio. It also sells some of its patents to patent trolls. So at least it's getting something out of the $6 billion per year it spends on R&D.

Some companies have sufficiently large patent portfolios that they can use to fend off IBM since IBM will likely be infringe on some of their patents. (But then you can make money via patent trolls and patent privateers.) However, companies with small patent portfolios are vulnerable and often have to pony up some money. Most of the time, the negotiations and payments are confidential, but IBM's case against Groupon was rare in that it actually went to trial in 2018 before it was settled and thus shed some more light on IBM's patent practices than is usually the case.
Ok fair comment, thanks for the info. Their total revenue is 77bn so I guess maybe 1bn of that via IP licensing could be reasonable, after all.
Returnofthemus profile picture
"IBM's case against Groupon was rare in that it actually went to trial"


No what was rare was Groupon countersuing for IP that Amazon, Facebook and Google each paid between $20m and $50m to IBM to license the technology.

That said Groupon now has a long-term patent cross-licence agreement with IBM.

Google has acquired well over 15,000 IBM patents and is probably by far IBM's biggest customer in that respect.

Next up Airbnb www.forbes.com/...
IBM: All these patents and hundreds of thousands of employees and still not capable of developing a competitive cloud offering in house. Year after year of shrinking revenue in spite of spending tens of billions on acquisitions. $34 billion spent on Red Hat even though the company is built on open source technologies with freely available source code. (Oracle downloads the source code for Red Hat Enterprise Linux, changes the branding to Oracle Linux, and has 15,000 paying support customers for it. So much for Red Hat's moat.)

The Red Hat acquisition is yet another data point that demonstrates IBM's inability to innovate and general ineptness when it comes to engineering. That acquisition is essentially like a bald old man buying a toupee in the hope of making himself attractive to younger women. And paying two million bucks for the toupee. It may not work, but what can you do? If you can't grow your own hair, you buy a toupee; if you can't grow your own technology, you buy another company.

Kind of fitting that mainframes are being brought out as reason to invest in IBM. Talk about a backward looking investment philosophy. Presumably, it was IBM's foothold in many large banks that made Warren Buffett invest in IBM. He is a big holder of some major banks and presumably, they told him they were using IBM mainframes and that they weren't going away. What did go away after a few years was Buffett as a major IBM shareholder. BTW, IBM has supported Linux on Z since the early 2000s when it invested $1 billion in Linux. No need for Red Hat to run thousands of Linux VMs on mainframes. Comically, IBM's Linux push 20 years ago got the company busted for vandalism and the guy who went after them is now the Governor of California.
I guess if you're old and want to appear young and cool, nothing beats a toupee and some graffiti.

As for IBM's dividend growth: Seems like it has dropped below the rate of inflation, which must suck if you are a retiree and using the dividend for living expenses. Here is the growth of IBM's quarterly dividend 2010-2020:
2010: $0.55 => $0.65, 18%
2011: $0.65 => $0.75, 15%
2012: $0.75 => $0.85, 13%
2013: $0.85 => $0.95, 12%
2014: $0.95 => $1.10, 16%
2015: $1.10 => $1.30, 18%
2016: $1.30 => $1.40, 8%
2017: $1.40 => $1.50, 7%
2018: $1.50 => $1.57, 5%
2019: $1.57 => $1.62, 3%
2020: $1.62 => $1.63, 0.6%
What's the next number in this sequence?

As for the new CEO: It's the guy behind IBM's cloud push that was so inadequate that the company had to acquire SoftLayer and Red Hat.

Like Stan Druckenmiller said in 2013 when he was short IBM while Warren Buffet was accumulating the stock at around $180 per share: If you want to be long innovation, go long Google; if you want to short innovation, go long IBM. (GOOG was about $520 at the time.)
jyabc888 profile picture
Agree with what you said and you said better than I can articulate.

We are the investors and we need to be together and demand much bigger changes.

Red hat is on open source vendor and I am surprised that they spent 34 B to buy an open source offering. Just change their AIX code base a bit and it may be better than Redhat or merger the two. It is very sad if they cannot get anything except open source code?

Where is real innovation from IBM since 1993?
Returnofthemus profile picture
LOL @David_A

Different user name, same long-winded, nonsensical DROSS!

IBM, one cloud to manage them all https://youtu.be/nrNHwpF00xQ

PS Some people still don't get it and probably never will ;-)
If you believe I'm someone called David_A, you are mistaken. And I'm really sorry about that since it was the most convincing bull case for IBM you have presented so far.
jyabc888 profile picture
IBM’s new ceo is not good. He was responsible for cloud and their cloud is even behind Alibaba based on Gartner.

Look at him from his interview, he is another career politician and he will be another Ginny.

Ibm needs an outsider to change the culture and culture eats strategy for lunch. I am not sure he can change IBM’s culture.

The tech announcement from Think 2020 are nothing new. They have no way to compete with other big names..
PACKER man profile picture
Goes ex tomorrow so another nice dividend...months ago, stock was down considerably and I had a large loss; hung onto it in spite of the article after article that IBM was RIP; with Ginny gone, I’m grateful that my many years of investing instinct kicked in and saved my capital PLUS nice dividend average going forward!
Dividend Ambassador profile picture
@Bill Zettler I was hoping the Board would go straight to Whitehurst and make home CEO rather than just #2.
Bill Zettler profile picture
killiondt, Hopefully the board has Krishna on a short leash and non-performance will not be acceptable. On the other hand, maybe they are in effect joint CEO's in everything but title. May the best man win!
I am ready to invest after stock goes down abit, Great move to bring in Red Hat New great 👍 ideas 💡 gee
Just started buying. New CEO looks good.
tssai98 profile picture
Lots of Tailwinds for IBM here
- Rich AI and Analytics capabilities collaborating on Healthcare.
- Pioneer in exploring blockchain tech.
- Redhat acquisition and monetizing out of Openshift.
- New CEO and President, one with solid cloud background and the other Redhat.

IMO, Buffetts timing the entry and exit of IBMs stock wasn't accurate.

Long IBM! Keep on Dripping...
"Buffetts timing the entry and exit of IBMs stock wasn't accurate"
His entry timing was certainly bad but he made a good decision to exit when he did. He think he got out around $170+ a share so he avoided a huge loss.
Buffett has a rare track record of returning 20+ percent a year over long time periods. Even if he got out of IBM with just a modest loss, his IBM experiment was likely a huge disappointment compared to what he was hoping for. And that happened in spite of all those large banks still using lots of mainframes. If the continued use of mainframes by large financial institutions was part of his reasoning for investing, he was right about that. It's just that it didn't do him much good.
FAANG, MicrosoftTesla, Shopify, Nvidia, Salesforce on dips.

Stay away from these old tired companies like IBM, GE etc.
p0zz profile picture
I remember msft beeing one of theese at 32$ s.p... Oh, and Apple too after PCs (to some degree) took over market share from MACs. Apple then reinvented itself and became success. Imho dont underestimate old giants
xKaotic profile picture
They just became a dividend champion with this latest increase. Opened an initial position, low-$100s. We’ll see how they do. Wouldn’t hesitate to cut loose if there is no progress on revenue growth in the coming quarters. Especially now with cloud exploding to the upside.
Old Professor profile picture
I think I read that a "Dividend Aristocrat" is a company that has increased its annual dividend every year for at least 50 years. What, then, is a "dividend champion"? Is it 25 years?

Thank you.
Benjamin Iwuc profile picture
@Old Professor "Aristocrat" and "Champion" are 25 years. "King" is 50 years.

The Dividend Aristocrat index is generated by S&P. Champion was coined by SA's late David Fish.
@ Old Professor


Champions (25 or more years)
Contenders (10-24 years)
Challengers (5-9 years)

The Dividend Champions list was created by David Fish in 2007 and is currently maintained by Justin Law.
The Dividend Champions List is wider in scope than the well-known S&P 500 Dividend Aristocrats and Nasdaq Dividend Achievers.
miret4080 profile picture
Great article!!! I put on a full position 10k shares 4/23 @ $119.98 it’ll be a long for a long time !! Drip drip
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