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Annex Bulletin 2007-22                              May 17, 2007

Excerpts from CONFIDENTIAL CLIENT edition (Annex clients click here)

Recent...

Per Ardua Ad Astra - Analysis of HP's 2Q07 business results [Annex clients click here] 

The Greening of Big Blue (IBM to spend $1 billion on "going green")

IBM CORPORATE

Updated 5/18/07, 2:00PM PDT, updates Market Update...

Echoes from IBM's Annual Conference for Financial Analysts

BRIC by BRIC... to Top Line Growth

IBM Sees Emerging Markets as "Engine of Growth"

"Brick by brick, my fellow citizens, brick by brick" (Roman Emperor Hadrian (76-138 AD)

"Rome was not built in one day" (John Heywood, British playwright, 1546)

SCOTTSDALE, May 17 - "BRIC by BRIC, my fellow Netizens, BRIC by BRIC," seems to be the modern Big Blue version of Roman Emperor Hadrian's famous epigram.  The road to top line growth leads through Brazil, Russia, India and China (BRIC).

Nearly a year ago, IBM held its annual briefing for financial analysts for the first time ever in Bangalore, India (see "A Tale of Two Blues," June 2006).  This year, Big Blue brought the topic of India and other emerging markets to its research lab at Yorktown Heights, New York (click on fall 2005 travelogue from there or on thumbnail to enlarge).  The message was the same: Emerging markets and SMB are the place to be.

The BRIC countries are growing at twice the global GDP rate, said the IBM CEO, Sam Palmisano, in his opening remarks.  They sounded remarkably similar to those at the IBM Partnerworld, just over two weeks ago.

[snip]

So "BRIC by BRIC, my fellow Netizens, BRIC by BRIC," seems to be the modern Big Blue version of Roman Emperor Hadrian's famous epigram.  The road to top line growth leads through Brazil, Russia, India and China.

"Rome Was Not Built in One Day"

But "Rome was not built in one day," as John Heywood, a British playwright, noted in 1546.  IBM's Palmisano also seem to plead for patience when it comes to Big Blue's global positioning and strategy.

"This is just the beginning.  We have a lot of work ahead of us," said Palmisano, sounding like HP CEO.  Mark Hurd said last night, "HP is still transforming... we're not even close to being done" (see "Per Ardua Ad Astra," May 2007).

[snip]

"By any comparison, this (IBM) financial model has outperformed the Dow 30 and our tech peers."

Outlook: Macro Trends Favor IBM

As he did in St. Louis on May 1, IBM's CEO also talked about three global macro trends that seem to play in Big Blue's favor (see left thumbnail).

“The past was defined by the PC-centric world," he said. " The PC was the center of the universe.  But that architecture has run its course...  PC client/server (era) is over.  It is over,” he added for emphasis.

The result is a new business model that will favor IBM's offerings, such as virtualization.

[snip]

Market Shrugs Off IBM, HP, Embraces Sun, Apple

Despite the bullish IBM comments and HP's excellent latest quarterly results, however, the stock market shrugged off the two IT leaders today's good news stories, while embracing Sun and Apple.

[chart here]

As of "high noon" today, both IBM and HP shares were down by almost a point, while Sun's surged by more than 4% on news of its new stock buyback programs.  As for Apple, it's stock also rose today, well, "just because."  People like apples as does Bear Sterns, as it turns out, that upgraded the stock (after we had done the above chart).

Later on this afternoon, Big Blue shares also briefly swung into positive territory, after the IBM CFO talked up the stock buybacks as a $1.1-part of the $5-hike to $11 per share earnings by 2010 (right thumbnail).  But they closed at $105.31, down 0.53%.

Oh well, you win some, you lose some...

[snip]

"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, who are now reading the complete Annex Bulletin, along with many tables and charts that back up our forecast.  

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Happy bargain hunting!

Bob Djurdjevic

Market Update: IBM Stock Up, HP Down on Board News

SCOTTSDALE, May 18 - A day after the IBM, two things happened that helped the IBM stock move into record territory again.  First, a realization seemed to sink in on Wall Street that $11 per share in 2010, which IBM is now forecasting, will mean over $13 billion in net profit that year, up 42% from the $9.5 billion IBM earned in 2006.  And by the end of 2011, Big Blue's bottom line should be closing in on $15 billion.  That's a $4 billion increase to our five-year forecast, as we suspect is to most Wall Street spreadsheets (Annex clients click on right thumbnail chart a detailed forecast update).

Second, HP made an announcement this morning that a former IBM CFO was joining its Board.  

So the HP shares promptly declined, while IBM's rose to new five-year records,  One could almost "see" the money flowing out of the HP stock into IBM (see above chart).  For more on the reasons for that, and John Joyce's legacy at IBM check out:

A Slam-Dunk of Bunk! Biggest Surprise: A Sharp Drop in ... delivering pure bunk, John Joyce has just scored a slam-dunk! A $557-million loss incurred by the Bug Blue...
 
"A Grand Slam Dunk of Bunk:" Analysis of IBM 4Q01 Results (Jan 18, 2002)
John Joyce, bravely drove the Big Blue ... truckloads of bad news. When Joyce pulled the same stunt two ... Jan 19, 2000 ). This afternoon, Joyce has outdone himself. Make it "A Grand Slam Dunk of Bunk"...
 
"Joyce Invents 'Rescoping':" Analysis of IBM Second Quarter Results (July 17, 2002) ...Joyce rejoiced (that) IGS’s backlog declined in the second quarter for the first time ever! That was evidently due to, what IBM now calls, “rescoping” - a “new English” word.  It has been coined to depict the old-fashioned customer reneging, or contract renegotiations, coupled with the usual cancellations and expirations...

For additional Annex Research reports, check out... Annex Bulletin Index 2007 (including all prior years' indexes)

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

Volume XXIII, Annex Bulletin 2007-22
May 17, 2007

Bob Djurdjevic, Editor
(c) Copyright 2007 by Annex Research, Inc. All rights reserved.
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