Hello Art and All,
About 15 months ago, when this thread had only 535 posts, I laid out my "Bear Scenario" for IBM, on this thread. As I expected the year to follow would show, shareholder's equity decreasing, long term debt continuing to increase, high margin ( near 70%) hardware sales decreasing, and the also high margin (also around 70%) software sales stagnating. The later loss in hardware and software sales would be somewhat offset by expected growth in the lower margin Services business, (22% margin).
It appeared to me at the time that IBM's earnings were only being supported by the movement of operations off-shore, thus reducing IBM's tax rate, (then at 39% now at 32.5%), and the continuation of the stock buy back program, (1.8 Billion in the most recent Q1). It was my believe at the time that investors were rational. That they made decisions of where to put their money based on realistic expectations of "true growth" and not on "gut feelings", hopes, or dreams. And MIPs up 45% on a decrease in hardware revenues doesn't do it.
I was wrong for believing that most analysts would report the reality of IBM's situation and that they didn't have hidden agendas. I was wrong in believing that investors would do their homework and see that IBM's buying back stock to support options for employees was only a short term band-aide at best.
Today, I am rather humbled by IBM's spectacular run up in stock price since then. I am still short and committed to continue to be so until my analysis runs its full course. However, I now recognize that there are many investors out there that saw something that I did not. Namely, that IBM must continue to buy its shares back in order to generate respectable bottom line earnings. Just remember though that in future quarters, as IBM's stock price goes up, it will become more expensive to buy fewer and fewer shares. In addition, there are only so many operations that can be moved off-shore to reduce taxes.
Congraduations,
Jules |
