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Technology Stocks : IBM -- Ignore unavailable to you. Want to Upgrade?

To: Robert Scott Diver who wrote (7511)	3/10/2002 8:50:08 AM
From: j g cordes	Read Replies (1) \| Respond to of 8218

Lets be clear on this discussion of IBM's price argument. The central question is stock price valuation relative to sustainable earnings going forward. That's the question. Its well recognized that when Gerstner took over IBM, it had many non-performing assets. He did a great job of converting non-performing assets to the bottom line and he did a great job of redirecting the company's business focus. He cleaned out the attic, had tag sales, sold off the family farmland set new guidlines for recognizing (using GAAP) balance sheet accounts.. all to the betterment of the stock price. Again, the question is sustainability. From Barrons July 2001 archive.. "A look at IBM is instructive. No one can deny Big Blue's strong operating performance, as its earnings per share rose from $2.50 in 1996 to $4.44 in 2000. That earnings trend propelled IBM shares, on a splitadjusted basis, from around 21 in mid-1996 to the 110-120 level recently. Over that period, however, IBM's book equity actually fell from $21.6 billion to $20.6 billion, while total debt rose from $22.8 to $28.6 billion. IBM's R&D spending averaged $5 billion annually over this span, while its yearly capital spending averaged nearly $6 billion. Meanwhile, share repurchases from 1998 to 2000 totaled almost $20 billion -- a sum that exceeds the $16.7 billion stated net value of the computer giant's plants and equipment, as seen on its yearend 2000 balance sheet. Down the line, will the declining equity-assets ratio and the sharp increase in debt limit IBM's ability to grow as rapidly and perform as well as it has in the past few years? Over the long haul, it's unrealistic to expect IBM to spend more on stock repurchases than on R&D or capital investment. And this development probably won't help its share price." What can be clearer? You keep stating that its debt is simply a matter of business sales lending.. ie financing customer purchases so that IBM makes money on the sale and loans.. but its more than that. Once the family farm is disposed of and there are no more tag sales, fewer (Gaap) efficiencies can be wrung from the laundry and the stock price may be hung out to dry. Am I saying this will happen? No, I'm saying that's what many suspect might happen.. only time will tell. We're all hoping it doesn't but our jobs as investors is to watch out for our own accounts, not simply be cheerleaders.