IBM: Big, Blue Rock of Gibralter
The stock market is getting creamed these days, and the tech sector is
especially hard hit. Even the premiere high-tech names are falling victim
to the bear now. Microsoft (Nasdaq:MSFT - news) , Intel (Nasdaq:INTC
- news) and Dell (Nasdaq:DELL - news) are down 20%-30% from their highs, and Cisco Systems
(Nasdaq:CSCO - news) is down 35%. But so far International Business Machines (NYSE:IBM - news) is
holding up pretty well, down just 10% from its highs and still up 18% on the year. Big Blue is apparently
viewed as a safe haven because of its steady, reliable business.
There is a saying: "Nobody ever got fired for buying IBM." The phrase normally refers to corporate staff
buying computer systems, but perhaps fund managers figure it now applies to buying the stock as well.
There is another saying: "There is comfort in earnings." IBM definitely has them, with earnings per share
of $6.17 in the past twelve months and a consensus estimate of $7.46 for next year. Since a lot of
investors are looking for comfort right now and since there is comfort in earnings, some are obviously
finding their way into IBM.
IBM may not be a hyper-growth ticket to riches, but when a company this size is doing things well, the
positive momentum is very reassuring. In a recent survey of technology professionals by SG Cowen,
IBM scored well in several key growth areas and garnered rising customer satisfaction. According to the
SG Cowen report dated September 21, IBM is "increasing its penetration of the burgeoning outsourcing
market as well as taking share in systems integration" Other strong areas include messaging (Notes)
and systems management software. Grouped together, SG Cowen estimates these growth businesses
will contribute 43% of revenues in 1998 and will grow at a 19%-20% rate for the next several years. A
final point from the SG Cowen report was that IBM's "host systems recurring revenue is not going
away." Nothing like a little revenue visibility to reassure investors.
IBM is also tackling the Internet with a vengeance. The plan encompasses the entire Internet
spectrum--from secured transactions to servers that help facilitate these transactions to messaging
applications that can be used on the Internet and intranets.
Notes, the groupware application that IBM gained through its acquisition of Lotus Corp. in 1995, has
been retooled to be used not only across company intranets but across the entire Internet. The user
base for Notes has grown impressively, from ten million in 1996 to an expected 30 million by year-end,
according to Lotus. The growth of Notes is a driver for other IBM networking products and services--
servers, enterprise storage, databases, even systems integration.
The apparent dependability of IBM's business performance naturally attracts investors in times like
these when the earnings outlook turns shaky for most other stocks. So with its share price down just
10% from its highs, you probably won't see IBM popping up on any lists of bargain stocks. Some
investors are simply willing to pay for a little comfort from Big Blue. |
