To Earlie from Earlie:
Ouch! I knew IBM's Q4 results would be nasty, but in some ways they were worse than expected.
Revenues came in at $24.2 billion, down 4% y-o-y. This extends to 10 quarters the period during which IBM's revenues have been flat to down y-o-y.
Profits were posted at $2.1 billion as opposed to $2.3 billion a year ago. Where I come from, that's a 10% drop.
Hardware sales were down 11 % and the hardware margins tanked to 26.6% from 34.2%. This used to be IBM's high margin business.
Notice that IBM's "global services, AFTER NORMALIZING FOR THE SALE OF THE IBM GLOBAL (DATA) NETWORK TO AT&T increased 7%."
Sure. Sooner or later we will become aware of how much of the actual sale price of that division (sold for $5.0 billion in 1999) found its way into the "revenues". after "normalizing".
Storage revenues declined, software was up marginally, specialized products were down 13%,
Expenses declined 9%. Of course. This one is going to be fun to explore, once the 10-Q is available.
IBM spent $2.1 billion on share buyback activity. Even when both revenues and earnings decline, old Louis continues to rape the shareholders of their equity endeavouring to hold up the earnings per share as well as the share price. Dumb is an understatement. That increased debt load is going to become increasingly heavy as the rates move up.
Note the $0.40 per share EARNINGS benefit that the company took (through tax accounting) as a result of its having sold one of its sterling assets, the global data network. I would estimate that most of that money has now been received by IBM. Try to find it on the balance sheet. Gone with the wind,....er that is, gone with the stock buy backs. Given the mounting debt levels, it is now but a matter of time before this silly buy back activity is cut off,....with an obvious implication for the share price.
Like Intel, the company acquired a bunch of companies and of course purged them of future expenses through the "one-time-only" charges to in process R&D, etc. As was the case for Intel, the revenues so acquired should have bolstered IBM's revenues and profits quite substantially (after all, the company spent $6.0 billion in picking up these companies) but this didn't occur, which speaks to just how ugly the last quarter was.
Once again, debt is up this quarter and is now at $28.4 billion. Even at current rates, that represents a ton of money that IBM has to find (earn) just to pay the interest bill. If this isn't writing on the wall, I don't know what it will take for the current crop of sheep to recognize an approaching disaster. Incidentally, IBM's interest expense line reflects the hiving off of the financing activities to IBM financial. It is meaningless from an analytical perspective.
In the segmented data, it's worth noting a few figures. For the year, the company lost $557.0 millions on personal systems (even though the revenues were up,... remember the disaster of early 1998 during which the company lost close to $1.0 billion). Technology sales provided a MINUS 20% year-over-year. Wow!
Server sales provided a complete line of minuses with respect to year-over-year comparisons (as I had forecast). Compare this with Lou's forecasts of early 1999.
The wondrous coincidences in service revenues continues. It's up 20.5%,....just what was needed to offset the hardware disaster.
So you think PC sales are still ok? IBM lost a quarter of a billion in that sector in this past Q4.
Server profits dropped 73% figure (pre-tax) for the quarter. Server profits, (the sector where all box builders and their cheerleader analysts expected to "hold up margins" for 1999) fell from $1.05 billion in Q4, 1998 to $281.0 million in Q4, 1999.
Of course the guidance was positive, so the analysts will be able to raise their share price targets. What a charade. This was a full-blown disaster this quarter. The emperor is wearing only a "g" string, and it's getting cold outside. (g)
Best, Earlie
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