All,
Since I have espoused my reasons for shorting IBM for more than a year now, and because as you and I are well aware that IBM has not worked out the way I thought it would, so far, I thought I should post this chart showing my reasons.
To all those who may have been influenced by my opinions on IBM, I apologize. IBM's stock has not reacted to the way I thought it should. However, I do not apologize for my logic in coming to my conclusions.
Jules
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As the figures below indicate IBM is not expert in financial engineering, as much as they are experts in investor relations and analyst confusion. About the only thing IBM is consistent with is relatively flat earnings. Their Balance Sheet is weakening significantly, and their Debt, Cash, and Total Asset value has been deteriorating for years.
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........................ 2Q98..........1Q98..........1Q97........1Q96........1Q95 ......................... -------...........-------...........-------......... -------..........-------
Total Revs $:...18,823......$17,618......17,308.....16,559......15,735
R & D & E $:......1,220..........1,179.........1,069.......1,526........ 913
Ernngs B4
Taxes $............ 2,083..........1,523..........1,852......1,,547.......2,184
Pre-Tx Margn %..11.1............8.6..............10.7.........9.3..........13.9
Effctive Tax
Rate................. 30.3%.........32.0%..........35.5%......50.0%......41.0%
Shares
Outstndng Mil.....939.2.........950.2.......1,003.4.....1,088.6.....1,170.4
(adjusted for split)
Cash & Secrts $..5,471........5,889........ 6,463........6,396.........7,701
Totl Assts.........77,112.....77,944.........76,527......77,766.......80,292
Total Debt....... 27,861....27,696......... 23,645......21,947.......21,629
Shareholder's
Equity $:..........18,577....18,865...........19,951......21,820...... 22,423
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As can be seen from the above chart;
-----About the most stable numbers, relatively speaking, are total revenues. They have increased by less than 20% over the last three and a half years. A closer examination would reveal that Hardware Sales, Software Sales, Maintenance, and Rental Revenues are all either down ,or relatively flat, (less than 10%). The only increase in Revenues has come from the Services Division, which has the lowest GPM.
----Earnings are adjusted , (or engineered), by reducing R & D when needed. R & D & E is now down more than 20% since 1Q96.
----Although, showing relatively strong Earning before taxes in 1Q98, they are actually down 15 % since 1Q95.
----Pre-Tax margins are down 20% since 1Q95.
----The lowering of IBM's tax rate from 50.0 % in 1Q95, to last quarter's 30.3, was the most significant reason for IBM's ability to maintain earnings after taxes.
----The buy-back of more than 230 Million shares of IBM's stock, since 1Q95 (1170 M shrs to today's 939 M shrs), was the most significant reason for IBM being able to maintain earnings per share.
----The decrease in cash of more than $2.25 Billion, and the decrease of Total Assets of more than $3 Billion since 1995, have been used along with an increase in total debt of more than $6 Billion, to buy back IBM's $230 share. In other words, IBM is borrowing heavily on its future, and reducing cash, to buy back its stock. It does NOT appear to be coming from increased earnings during the period.
----Total debt has increased more than 25% ($6.3 Billion) since 1995, while shareholders equity has decreased more than 20%, (almost $4 Billion).
----From 1Q95 to today IBM's stock has quadrupled.
At the same time Merrill Lynch, has assigned " a 1-1 Strong Buy" rating and recommendation on IBM, and a "Neutral" rating on INTC. GIVE ME A BREAK.
The information above was taken from IBM's 10K reports and are believed to be accurate. However, I take no responsibility for its accuracy, although I have made every attempt to provide IBM's numbers as accurately as possible. The reader is urged to do their own homework in making any buy or sell decisions. This post is NOT a recommendation to buy or sell IBM.
Jules |
