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IBM CORPORATE AFFAIRS
Report from IBM's 1997 Annual Meeting
IBM Shares Rise; Flustered Chairman Misquotes His Own Figures
Apr. 29, 1997 - "I just checked the stock (price) before the meeting (started), and
the stock is up four points," an exuberant Big Blue chairman, Lou
Gerstner, told the IBM shareholders assembled at today's 1997
Annual Meeting in Dallas, Texas.
before making this triumphant statement, Gerstner had announced that the
IBM Board approved this morning a 14% dividend increase, and authorized
another $3.5 billion to be spent on IBM's share buybacks.
the end of the day, the IBM stock was to rise more than eight points,
and the Dow surged by 179 points for the second biggest daily gain in
history. Yet, while Wall
Street cheered, this was a "black day" for America's Main
Street. For, some $17
billion has, or will have, been siphoned from Main Street into the Wall
Street investors' purses - without any benefit to our country's economy!
during the Q&A period which followed Gerstner's speech, this writer
asked the IBM chairman the following question.
"As I stand here before you, I am reminded of
the question I asked of one of your predecessors, John Opel, at the
Boston Annual Meeting in 1983. 'Why
are you mortgaging IBM's future?'"
"I never thought I'd have to ask the same
question again. But here we
are, and I do... Lou Vincent Gerstner - 'why are you mortgaging IBM's
This writer went on to explain that Opel, and later
John Akers, tried to create an ILLUSION OF PROSPERITY by selling off the
IBM assets, a process we called the "Great IBM Lease Base
Sale," to cover up for the shortfall of operational earnings (see
Annex Bulletin 91-31, 6/12/91).
"And we all know how 'successful' they (Opel,
Akers) were in the end, don't we?" we asked rhetorically.
"Today, you and this IBM Board are doing the
same thing with the stock buyback program," we continued.
"You could have bought hundreds of promising IT companies
for the $13 billion of IBM shareholders' money which you've spent on
stock buybacks. And this
morning, we've heard that this Board had just approved another $3
billion or so to be spent on additional stock repurchases."
"You even sounded proud of it!?," this
writer raised his voice as an exclamation mark, to emphasize the
ludicrousness of it. He
then paused for the message to sink in.
At this point, the IBM chairman took a gulp of what
presumably was ice water on the speaker's lectern.
"In other words, you and this IBM Board chose to
invest in the P/E ratio, rather than the 'E' - the new sources of FUTURE
earnings," this writer concluded.
Meanwhile, as you saw in the Annex Bulletin 97-16,
4/23/97, over 80% of IBM's first quarter (1997) gross profits came from
DECLINING businesses! The
picture is even grimmer at the pretax profit level. So Gerstner and his
Board also opted for trying to create an ILLUSION OF PROSPERITY, just as
Opel and Akers did.
"So to summarize... why are you mortgaging IBM's
future? Are you about to
quit? Is the IBM Board
about to resign? And if not
- why not?" we fired off a barrage of questions.
"For, frankly, I cannot see how all of you will
be able to face the IBM shareholders in a year or two when things do
change," we added.
This time, the IBM chairman opted for a deep breath,
rather than another gulp of presumed ice water.
Gerstner replied, "the amount of money spent on
stock buyback program is dwarfed by the amount (of money) we spend on
future IBM earnings."
Of the $18 billion per year available to IBM for
investments, Gerstner said that $5 billion was spent on R&D; another
$5 billion on capital investments; and (some unspecified amount) on
other new businesses which IBM bought.
"So I don't see your arithmetic," he
concluded. "It does
not add up to ours."
Well, maybe the IBM chairman should follow his own
advice to the Dallas students who attended the meeting at IBM's
i.e., go back to the three basic "R's" (Reading, Writing, 'Rithmetic). For, Gerstner's (IBM) 'Rithmetic must be some "new
math." Bad example for
You see, according to IBM chairman's own letter to
the shareholders published in the 1996 Annual Report, IBM spent $6
billion in 1996 on capital expenditures, not $5 billion as Gerstner just
"So what's a billion here... a billion
there...," especially when it is someone else's money?
Meanwhile, IBM spent almost the same amount ($6
billion), again according to Gerstner's letter, on stock buybacks in
1996 as it did on capital expenditures. And IBM invested ONLY $1 billion
on acquisitions, including a large one - Tivoli - again per IBM
chairman's own report.
So the $6 billion which IBM has spent on stock
buybacks in 1996 ($13 billion aggregate to-date) is being
"dwarfed" by the $1 billion which IBM spent on acquisitions?
faux pas regarding the facts about his company was stunning. Especially given what he himself had written only a few weeks
ago (see the above box). You'd
think that a person who received over $80 million in compensation in
1996, according to a Business
Week estimate, would at least be able to recall that!
Or be able to tell which is bigger - $6 billion or $13 billion
versus $1 billion? Maybe he
that evidently didn't worry Wall Street too much, where some analysts
rushed to defend IBM's stock buyback.
After all, the facts or the truth aren't really in great demand
in the Magic Kingdom a.k.a. Wall Street.
Street $17 billion; America/Main
Wall Street's applause clearly defined where Gerstner's loyalties lie.
It is to Wall Street, not to Main Street (where the Watsons
started the company), that Gerstner and this IBM Board are loyal,
notwithstanding the IBM chairman's proclamations about how many jobs IBM
has created, or how much fun it supposedly is to work at IBM today.
let's ask ourselves (and him) this question: How many jobs did IBM
create in America (or in the world, for that matter), for the nearly $13
billion which it has spent buying back its stock, or the additional $3.5
billion which it is about to spend on it?
the U.S. economic scoreboard reads:
Street $17 billion; America/Main Street
more than anything else that an observant Dallas student might have
learned at today's IBM Annual Meeting, it is this message about what's
wrong with America today. A
company is allowed to pull $17 billion out of productive economic use,
and transfer it into Wall Street investors' pockets.
The depth of perfidy by the few financial plutocrats who have
devised this clever, yet devious, scheme - is truly amazing.
Everybody, even the Main Streeters present at the meeting,
cheered this squandering of capital (!?), instead of calling for our
elected politicians to OUTLAW such scams.
Even the Albanian pyramid sham looks like child's play by
you forgot, that was $17 billion of REAL money that IBM spent without
creating ANY REAL benefits to the country's economy!
didn't even get the crumbs.
how long will the IBM/Wall Street party last?
knows... If the past track record is any indication, there is no reason
to ditch the IBM stock fast. After
all, four and a half years after this writer asked John Opel that 1983
question about "mortgaging the IBM future," the IBM stock hit
its ALL TIME HIGH! (in August 1987).
much for REASON or COMMON SENSE having much to do with Wall Street!
on the sugar-coated, congratulatory messages which Gerstner received
from the majority of the shareholders who spoke today in Dallas, it
would appear that their (IBM shareholders') fate is well deserved.
If anything, the crowd at the 1983 IBM meeting in Boston was
tougher by comparison. At
least someone stumped IBM's Opel by asking him if he had a PC.
Happy bargain hunting!
P.S. The quotes from the exchanges at the Annual Meeting are based on this writer's notes. The actual transcript may vary slightly in form but not in substance.
took the words right out of our mouth.
Or so it seems... We
were certainly flattered when he used the same metaphor at today's IBM
Annual Meeting that we did when reviewing IBM's first quarter results.
Right after having summed up that overall, IBM has made "solid
progress," Gerstner added:
hope you don't think we're on a 'Tarzan strategy' - swinging from one vine
and grabbing another."
wrote (see Annex Bulletin 97-16, 4/23/97):
"Tarzan" Strategy. Not only were the revenues
down for all IBM servers, but (Rick) Thoman was quite blunt when it came
to the reasons the AS/400 business was down.
"It was due to inadequate promotion and channel management
(especially in Europe)," he said.
During the Q&A period, he explained that, what he meant by
that, was a poorly executed shift from the direct sales coverage to
marketing through business partners.
were reminded of an almost identical story we heard from DEC's CFO, Vince
Mullarkey. He called it a failed "Tarzan strategy" (see Annex
Bulletin 96-44, 9/06/96).
a "Tarzan strategy?"
go of one rope before catching another one," Mullarkey explained. J
 IBM apparently supplied to this Dallas school some of its educational products to help teach math more effectively.
Editor: Bob Djurdjevic
5110 North 40th Street, Phoenix, Arizona
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