couldn't resist posting this bear's take on IBM:
investyourself.com
IBM's Slow Death
Over the past several months you have all been used to getting a Tech Outlook where we are trying to find promising companies that are "doing the right thing" and that we feel will reward you in the future. The following report is going to be completely different, folks. We are going to be pointing you to a company that we think is NOT going to have a great future. In fact, we feel their future is lousy. So why do it? To show you how some companies have become "stuck in a rut and in love with Wall Street" versus implementing the management changes needed to compete with the "new hot guys" on the block.
Trouble Brewing. If you look out over the "established" tech horizon, there are several names that are as familiar as your own last name. Worldcom, AT&T and IBM come to mind. But there is trouble brewing in some of those old names, folks. Look at AT&T. They are heading to the "showers," so to speak, and they cannot get it into their heads about how to change course. They are rolling out technology and infrastructure that will be obsolete before they even get it running.
The other one is IBM. Almost exactly two years ago we did a piece on them after sitting in with several of their managers. We had been sold a line of baloney so perfectly pitched that we were convinced they were going to rise back to the top of the technology food chain. WRONG. Luckily, IBM was able to move higher and actually reward us since then many times, but there is going to be a time--and we think relatively soon--when the music will stop and they are going to head south just like our old buddy AT&T.
Why? Oh boy, what a story this is going to be. Back during that meeting, we heard manager after manager tell us how they were going to "break the mold," "reinvent technology" and move from "Big Blue" to "the Biggest Blue". Their tales were interesting. But last year we kept seeing the same old IBM. They were struggling to make the numbers, and the Street kept saying, "Just wait until next quarter. You'll see". Well we have seen enough. They struggled again this quarter, and while JNPR, SUNW, and even INTC were posting huge gains, IBM managed to cough up a 19% loss compared to last year. Management worth it's own weight is leaving (and has left) in droves to manage eager companies bent on putting IBM out of business. They are fiddling with their taxes to keep the numbers at least "decent." (Take out tax gains for last year and they actually sold 31% less than the year before!) They are selling the "intriguing parts" of their technologies to other companies like Dell or even Lexmark.
No Research. Forget about them finding the next hot arena to be in. That takes serious research and development. They are buying back stock to prop up their shares and keep the management that is still there in a job. But research and development is gone, and they had so many losing interests they are stating their earnings going forward in a very special way. They say that revenues will grow by 13-14 % excluding the businesses they have sold. Excuse me? I'm afraid you pretty much have to take those losses, Mr. IBM.
Playing the Game. So why in the world is IBM still where it's at? Simple, folks--they keep the Wall Street machine well oiled with investment banking. They keep the television and print media well oiled with advertising dollars. They keep fund managers well fed with huge gala flings. But it has about run it's course. We are looking at a former tech monster that is now a service oriented "Mr. Fixit".
So, as much as it pains us to think that we got "buffaloed" so badly two years ago, the facts speak for themselves. IBM is dying a slow, prolonged death, propped up by greedy Wall Streeters who will bleed it dry. At some point, a collapse is going to come. We think that if you are invested in IBM, the best course of action for you is to slowly back out of your positions. Use market run-ups in to sell into.
The Future.
Is IBM a stock that you will be able to hold again forever as it was once? Yup. But the difference is that it will be trading in the 35-dollar area, LOLOL....not in the 90-140 range it's seen lately. We are watching a game of "musical earnings" with IBM, and one day the music will stop and they won't be able to find an empty chair to drop their latest failure into. It will miss the chair and fall right on millions of unsuspecting investors. How about their Wall Street buddies? They will be safe and more than willing to help sweep up the pieces (for the right investment banking price, of course). |
