Annex Bulletin 2010-03 January 19, 2010
A partially OPEN edition
Recent... 
Big Blue Poised for Growth Again - "State of the Union"-type analysis of IBM performance
Rally of Hope over Fact Continues - Analysis of Top IT Cos 2009 performances
IBM FINANCIAL
Updated 1/19/10, 8:00PM EST
Analysis of IBM Fourth Quarter Business Results
IBM Delivers...
Big Blue Sets Plethora of Records, Exceeding Expectations, Leads Industry Out of Recession
MIAMI. Florida, Jan 19 – IBM outdid itself, again.
"The company results set all-time new records in revenues, pretax profit, EPS and free cash flow, exceeding Wall Street’s and this writer’s expectations by a wide margin. What recession? Not in Armonk, evidently."
The preceding was a quote lifted from our analysis of IBM's fourth quarter a year ago!(see Two Thumbs Up for Big Blue, Jan 20, 2009). Yet each and every word of it is as relevant to Big Blue's latest quarterly results, released after the markets closed today.
Unlike Intel, for example, whose huge increase in profit it reported on Friday was merely due to a mega-disappointment a year ago, IBM went from strength to strength. Big Blue's last quarter capped a year in which the company shattered records in the midst of the global recession, despite disappointing results by many of its peer IT giants.
When Big Blue lifted the curtain lifted this afternoon, a number of old/improved and new records were on display:
- Record earnings per share of $10.01, up 13% (7th consecutive year of double-digit EPS growth)
- Record net profit of $13.4 billion, up 9%
- Gross profit margin of 45.7 percent (6th consecutive year of growth; (up in 21 of last 22 quarters)
- Record free cash flow of $15.1 billion
In short, IBM’s fourth quarter results confirmed our forecast that the company would return to growth, and even slightly exceeded our expectations. IBM revenue was actually up 1% (down 5% in constant currency), while earnings rose in double digits (up 13%). And the company seems to have exceeded its own expectations.
"We're about a year ahead of schedule," said Mark Loughridge, IBM CFO, in post-release teleconference with analysts. He was referring to a roadmap to $11 EPS in 2010 which the IBM executives promised in almost three years ago (see BRIC by BRIC... to Top Line Growth, May 2007).
Furthermore, the breadth and the depth of IBM improvements across the geographies, product lines and industries the company serves, suggests that Big Blue is leading the industry out of the recession. And Wall Street finally seems to be getting it, too. The stock set a new multi-year record in regular trading today, even before the fourth quarter results were released (see the chart).
Big Blue is doing it by restoring trust and confidence of investors that a company can deliver on its promises quarter after quarter, year after year. As you saw, this was 7th consecutive year of double-digit EPS growth. And building credibility with investors is key to long-term appreciation of the share values.
Which is why we updated our annual “State of the Union”-type report for Big Blue saying the company was about to return to growth. Here’s an excerpt:
IBM is once again poised for growth. A 98-year old company, written off as a dinosaur in the 1990s, is once again acting as spry as a springbok, and setting the leadership agenda for the IT industry to follow. We see blue skies are ahead for Big Blue. "Post nubilla, phoebus" ("After the clouds, sunshine" [Latin]).
(from Big Blue Poised for Growth Again, Jan, 2010).
And IBM's return to growth is only starting. Referring to the current (first) quarter, the IBM CFO told the analysts that, "we expect a four to five point improvement in IBM's year-to-year revenue growth rate from the fourth quarter."
Services: Great Offense, Tough Defense
One reason is IBM Global Services' new contract services singings. At $18.8 billion in the fourth quarter, up 9% from the year before, they set an all-time fourth quarter record. And IBM did it despite the recession which evoked competitive woes.
It was the resulting backlog growth, however, from $134 billion to $137 billion, that bodes well for future revenue and earnings growth in Big Blue’s largest business segment (services). That's because for the third quarter in a row, IBM's inflow of services deals has exceeded the outflow, causing the backlog to rise. While new contract signings are a mark of great offense, the backlog growth is a sign of solid defense.
Since IBM services now represents about 60% of the whole company, as goes services, so goes Big Blue. So stand by for renewed growth of both the top and bottom lines in 2010 and beyond.
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Click here for detailed IBM 4Q09 and full year 2009 tables and charts (Annex clients only) |
Bob Djurdjevic
P.S.: When Things Are Meant to Be...
MIAMI, FL, Jan 19 - Thought you might be interested in this "PS" to the IBM story as a "color commentary" of sorts.
You see, I wasn't supposed to be here in Miami as yet. According to our original flight plan, I was supposed to be in the air from LA to Miami. And that AA flight did not have WiFi on board. Which means I would have had to wait for it to land in Miami after 8PM EST to find out what happened in IBM's 4Q.
Last night, I sent a message to that effect to our clients and media friends. But when something is meant to be, it is meant to be, even if heaven and earth have to be moved for it to happen.
As it turned out, I was able to get out of Los Angeles as a stand-by on an earlier Miami flight this morning. The above “business as usual” coverage of IBM's 4Q release is a result.
What I did not realize until arriving in Miami, however, is that getting out of Dodge (LAX) was very fortuitous for weather reasons, too. Throughout the afternoon, TV newscasts showed vicious storms slamming California right now. LA has even had tornado warnings, along with a 15-20-foot surf. Which means my flight have been probably delayed on our originally scheduled flight. Yet when we landed there at 5AM this morning on a "red eye" from Maui, the runways were bone dry and everything was calm.
When something is meant to be... I was evidently meant to cover the IBM story tonight. :-)
Off to Peru now...
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Volume XXVI, Annex Bulletin 2010-03 Bob Djurdjevic, Editor
(c) Copyright 2010 by Annex Research,
Inc. All rights reserved. |
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