Annex Bulletin 2011-17                              October 17, 2011

A partially OPEN edition


Happy Birthday, IBM! (IBM to turn 100 on June 16; what's the secret of its success?)

Apple Falls from Tree to Cloud, Then to Earth... with a Thud (Last major holdout joins race to cloud, but falls flat on first attempt)



Updated 10/17/11, 10:30PM HST

Analysis of IBM's Third Quarter Business Results

When Great Is Not Good Enough

Big Blue Outperforms in Apple So Far This Year

MARKET UPDATES: Annex Bulletins (Oct)

While traveling in Europe, where we spent most of the month of October, this writer covered several market moves by email.  We reproduce those reports here as Annex Bulletins 2011-16 and 2011-17,  along with the charts that were published within them.


KILARNEY, Ireland, Oct 17, 2011 - It is late here in Europe, but not too late to chuckle over Wall Street's erratic behavior.  IBM just had another great quarter. Yet it wasn't good enough for speculators who had hyped up the stock to a new all-time high ($190.53) on Friday in advance of today's earnings release.  So "disappointed" investors dumped the stock in after-hours trading. As I write this, the IBM shares are down about six points to about $180, after sliding four points in regular trading.

To us, this seems more like profit-taking on overhyped expectations, rather than trading based on anything remotely resembling IBM's business results.  

For, IBM's 3Q business performance was as solid as a rock.  All of its strategic initiatives are delivering strong double-digit growth and increasing profit margins. Consider these facts:

  • Software revenue up 13 percent, 8 percent adjusting for currency;

  • Services revenue up 8 percent, 2 percent adjusting for currency;

    • Services backlog of $137 billion, up $2.4 billion [emphasis added]

  • Hardware revenue up 4 percent, 1 percent adjusting for currency

  • Growth markets revenue up 19 percent, 13 percent adjusting for currency;

  • Business analytics revenue up 19 percent year to date;

  • Smarter Planet revenue up 50 percent year to date;

  • Cloud revenue year to date has doubled full-year 2010 revenue;

  • Full-year 2011 Operating (non-GAAP) EPS expectations raised to at least $13.35 from at least $13.25.

But tonight, Wall Street could not be bothered with facts.  It had already made up its mind to sell no matter what Big Blue did.   So "buy on rumor, sell on fact"-adage is playing itself out again tonight. In the long run, however, IBM shares are bound to bounce back when common sense and reason replace the speculators' fever and cooler heads prevail.

So the universe is unfolding in perfection.  And Wall Street's irrationality is becoming predictable.

Good night and good luck!

Enjoy your week!

Happy bargain hunting

Bob Djurdjevic



GALWAY, Ireland, Oct 19 - IBM and Apple, by far the two most successful IT companies this year, find themselves in parallel universes this week.  Both are in a bit of a pickle despite the outstanding 3Q results.  Apple's share dropped about 6% following its latest earnings report, just as IBM's stock plummeted two days ago on equally impressive results. Take a look...

The reason?  Both companies set all-time records leading up to this week's earnings announcements.  So now investors are taking profits.  The higher they fly, the harder they fall.

But not for long.  Just as IBM's, Apple's future looks rock solid. Check out these facts before you follow your emotions and Wall Street's herding tendencies:

From Apple’s earnings report:

    • Quarterly earnings of $7.05 missed analysts’ estimates of $7.28, but still represented a 54% increase in EPS from the prior year.

    • The company is showing explosive growth in China, this should be an increasing driver of revenues going forward as China already accounts for 16% or sales.

    • Revenue came in at $28.3B. Although this missed analysts’ estimates by just over a billion dollars, this figure still marked a 39% annual improvement.

    • Although iPhone sales (17.1mm) were significantly under estimates (Consensus 20mm), they still rose 21%. Most of miss is probably attributable to people putting off purchases until the new model was released. As such, it is a temporary blip.

    • Guidance was good as Tim Cook put out numbers of $37B and 9.30 in earnings for the fourth quarter.

Therefore, what happened so far this week to IBM and Apple can best be described as a correction of unwarranted exuberance.  Once the market reaches an emotional equilibrium, the shares of both IT leaders are likely to start rising again.



HAIKU, Maui, Oct 27 - Which is what happened about a week or so later. Check out this chart...

A little over a week ago, writing from Galway, Ireland, I said that a demise in the stock values of the two most successful companies in the IT business - IBM and Apple - should be regarded as a temporary correction: "What happened so far this week to IBM and Apple can best be described as a correction of unwarranted exuberance."

I added that, "once the market reaches an emotional equilibrium, the shares of both IT leaders are likely to start rising again." [see the charts below]

Well, that correction is now over.  And the Big Blue and Apple shares are on the rise again, as is the Dow.  

It is interesting to note that IBM has actually outperformed Apple despite a slight drop in after-market trading caused by the news that there will be a change at the top of Big Blue come Jan 1 (Ginni Rometty was named CEO).  The stronger upward pull came from the European banking deal on Greece's debt.  And high tide lifts all boats.

As a result, IBM is now within four points of the all-time high the company's shares set on Oct 24 ($190.53).Neither IBM nor Apple never looked back.

Or just click on SEARCH and use "company or topic name" keywords.

Volume XXVI, Annex Bulletin 2011-17
October 17, 2011

Bob Djurdjevic, Editor

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