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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Joan Osland Graffius who wrote (30061)	7/21/1998 3:30:00 PM
From: Earlie	Read Replies (2) \| Respond to of 132070

Joan: Good comment. Three quick observations: 1. Operating earnings are not increasing. 2. Service revenues, (as booked) have for several quarters exactly matched the reduction in hardware/software/maintenance revenues. A coincidence of course (g). 3. It is an amazing company that can obtain a growth PE with no growth. Best, Earlie

To: Joan Osland Graffius who wrote (30061)	7/21/1998 5:31:00 PM
From: Knighty Tin	Read Replies (3) \| Respond to of 132070

Joan, Several things. First of all, cash don't lie, and IBM's cash is disappearing fast. Yes, you and I both wish we had that much money in our bank account, but Big Blue cannot continue to burn nearly 30 pct. of its cash every year without some replacement moolah from somewhere. The hardware business is a lousy one, but it is a free cash flow business, as theirs is a mature, some would say, dying, business. The service business is a promise business. Cash does change hands somewhere down the road if IBM is not simply making up the revenues, but it is not coming in right now. The other bugaboo is something called a credit rating. Higher debt and lower retained equity raises flags at some point. Right now we have a company with a debt load equal to a full year's revenues and 5 years of net income at current earning rates, and double stockholder's equity. If IBM were a growing concern, that wouldn't bother me much. But, with stagnant and even declining earnings over the long haul, and increasing debt, I think a crunch point looms on their horizon. A minor point is that nearly all of the eps "gain" is from lower taxes. At some point, if Louis keeps a braggin', Uncle Sugar is gonna want his share. MB