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Shares' Go into Tailspin Despite Gerstner's "Spin" 

IBM Stock Plummets

“Big Blue” Breakup Idea Also Revisited by Forbes

PHOENIX, Nov. 10 - Perhaps you've noticed a slight dip in the price of IBM shares on Thursday (down 56 cents to $99.44), following its CEO's Wednesday lackluster performance in, what are usually Lou Gerstner's "love ins" with admiring Wall Street IBM watchers (a conference security analysts).

Having promised growth, and then failed to deliver it, the IBM CEO is now trying to talk Wall Street out of looking for it. Instead he wants analysts to continue to applaud the esoteric value of his brilliant strategy (see today's Wall Street Journal report to that effect). Good luck!

But even if you missed the Thursday dip, it would have been hard not to notice yet another big wallop that the Big Blue stock took in today's market action. IBM shares dropped 6.5%, or over $11 billion of its value, in a single day's trading (Friday). to close at $93.

One possible reason? A renewed market interest in the IBM break-up idea which Gerstner had dismissed out of hand in mid-1996 (see "Louis XIX of Armonk", and several Annex Bulletins on that topic, along with our latest "What's IBM Really Worth?").

Here's what the FORBES magazine, for example, said in a lead to its story, headlined "Baby Blues," published in its latest edition (dated Nov. 27), now available on-line:

"The stunning decision to break up the ailing AT&T may be the most significant move of C. Michael Armstrong's long career. The opposite verdict - to keep a troubled giant intact - may hold the same significance for Louis V. Gerstner Jr. of IBM."

FORBES then goes on to provide some historical background to the break-up idea, before throwing up some caution flags about it in the contemporary context:

"But divestiture has one drawback The pieces of a broken-up IBM might actually be worth less than the whole. Five years ago, the pieces would have been worth twice as much as the whole, says Robert Djurdjevic, the president of Annex Research.

Today he figures that by breaking IBM into six companies - servers, PCs, software, services, chips and financing - the pieces of IBM would be worth a total of about $150 billion, 17% less than IBM's current market value of $180 billion. Still, he argues, a breakup might make IBM more competitive and lead to better returns in future years."

FORBES ends its "IBM break-up retro" story with an comment that could serve as an apt answer to IBM chairman's efforts to deflect the blame from himself for a lack of growth that his (otherwise brilliant strategy, we're supposed to believe) has produced:

"For Gerstner, the challenge is to show why he was right to forgo splintering the world's largest computer maker. To do that, IBM needs to show real growth. And soon, please."

After Gerstner's seven and a half years and counting at the IBM helm, "soon" ought to mean about five years ago. That's how much slack the Big Blue has already received from an evidently forgiving Wall Street.

To read the full FORBES "Baby Blues" article at its web site, click here.

Happy bargain hunting!

Bob Djurdjevic











Volume XVI, Newsflash No. 2000-01
November 10, 2000

Editor: Bob Djurdjevic
Published by Annex Research

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