Money Matters - New York Financial Talk Radio
Thursday, October 17, 2002
Interview on Gary Goldberg Show
NEW
YORK, Oct 17 - Here are the highlights of this
morning’s interview on the Gary Goldberg financial talk show in New
York. The interview started
at about 10:15AM, i.e., during the first hour of trading on the New York
Stock Exchange.
The host, Gary Goldberg, said he still has the position that IBM is a good investment opportunity. But he acknowledged graciously the accuracy of this writer's earlier pessimistic forecast about the IBM stock in the introduction to this segment of the show.
For those of you listening to the replay (see the link below), the following segments starts at about 7.0 on the Windows Media Player dial:
GOLDBERG:
Welcome, Bob Djurdjevic.
DJURDJEVIC: Hi, how are you?
GOLDBERG: Ah... fine. Bob is the head of Annex Research, a company that has followed IBM for 24 years. And let me first start off by congratulating you, Bob, on a pretty good call on IBM since our last interview. You had forecast that the stock was going to go from at that time $85, down to $40 to $50. It did get under $60, and I was watching it and thinking of you.
DJURDJEVIC (laughing): Well, thank you. Sometimes things do happen according to forecasts.
GOLDBERG: I am in the other camp, as you recall. I just want you to explain, if you don't mind, to our listeners what is going on right now. Because this morning, Merrill Lynch has upgraded it (the IBM stock) to a buy.
DJURDJEVIC: Yes.
GOLDBERG: And the stock is surging... oh, up about 10% today. So what is one to do if they own IBM, or are contemplating owning IBM? What about those who shorted it on your say-so?
DJURDJEVIC: First of all, I don't recommend stocks. So if anybody made their move up or down, that's entirely their call. I analyze companies and their business fundamentals.
GOLDBERG (agreeing): Aha... Okay.
DJURDJEVIC: To answer your first question about what's going on this morning... I think what's going on this morning, in the aftermath of yesterday's sharp drop, the market was thirsting for some good news. I am talking about yesterday's announcements by Intel, Coca-Cola and so on, that had driven the market down.
And so, any absence of (more) bad news, such as IBM's case, is bound to be interpreted as great (news). That's really what's been happening. I think by the time reason and sanity sink in, and the facts and reason about IBM's earnings release prevail, you're going to see the IBM stock again drifting downward.
GOLDBERG: Okay. So you are still forecasting that it is going to go lower. Are you expecting a rebound in the technology sector in the year '03?
DJURDJEVIC: Most likely yes, but not in the hardware portion of the technology sector.
GOLDBERG: Now, of course, IBM is in a lot of things, not just hardware. Are you expecting that IBM will act differently than the rest of the technology sector next year?
DJURDJEVIC: Yes, to this extent... IBM depends now very heavily on the Global Services business, as you correctly pointed out, not just the hardware. However, that once stellar, as I called it "crown jewel" of the IBM operation, has shown some pretty significant blemishes lately.
Listening to what the IBM CFO, John Joyce, said yesterday in the teleconference with analysts about why he was optimistic about 2003, namely that IBM Global Services revenues and profits would grow, I have to tell you, not only was I skeptical, but I was quite pleasantly surprised to see how many other analysts were skeptical who were questioning him (Joyce) about that.
GOLDBERG: Why then would Merrill Lynch upgrade the stock this morning to a "buy" with a target price of $82?
DJURDJEVIC (chuckling): Hey... that's really a $64,000-question!
Because some of these analysts were really grilling the IBM CFO in yesterday's teleconference. Maybe some whispering took place overnight? I don't know. I have no idea. You should be asking them why they would upgrade the stock like that. Because certainly if you listened to the call yesterday, you would discern healthy skepticism that pervaded the Q&A.
GOLDBERG: What do you think IBM has to do to get to a target price of $82 or higher? Because, as you know, in our last conversation, you felt they were much too centralized...
DJURDJEVIC: Exactly...
GOLDBERG: ...and immobile.
DJURDJEVIC: That's exactly... nothing has changed in that respect. So my answer is still the same. They need to break out operations that are relatively successful, like the IBM Global Services, and let them run by themselves, and not be mixed in with all these hardware quagmires that IBM has.
And then IBM should dump a lot more than just the hard disk hardware business which they did to Hitachi. There are a lot of other money-losing operations, or low margins operations in the hardware sector that IBM should be divesting itself from.
GOLDBERG: Are you, as a follower of IBM for so many years, cognizant of any contemplation they have of making all these changes?
DJURDJEVIC: Not really. Frankly, I said that at the beginning of the year. As long as the shadow of the former chairman and CEO, Lou Gerstner, was being cast around Armonk, and it still is, (that would not happen). Although he is no longer the CEO, he is still on the Board and is hovering behind Sam Palmisano's shoulders.
GOLDBERG: The last question I have time for, unfortunately Bob, in view of the fact that we have had a major breakdown in the integrity of our markets since we last spoke, and people have fled, particularly the Europeans and other countries, when we clean up our act, I am of the opinion that they will flock back to our market, and the stock they are going to focus on, will be the stock like IBM. Your comment?
DJURDJEVIC: I am totally with you. WHEN we clean up our act, that's exactly what's going to happen.
GOLDBERG: So, buyers may lift the boat that's called IBM then. The international buyers will buy it.
DJURDJEVIC (chuckling): That may well be. The stockmarket as you know, like a tide, lifts all boats. Even some leaky ones.
GOLDBERG: Bob Djurdjevic. Thank you very much for being on Money Matters. It's always a pleasure, and we're going to revisit with you again.
The host signed off this segment by asking Djurdjevic to give out the address of the Annex Research web site to the Money Matter listeners.
THE
END
As we said, the interview starts at about 7:00 minutes on the Windows Media Player dial.
After
today (Oct 17), and for
the next week or so, you can listen to the entire interview by clicking
on:
http://www.mmfn.net/Archives.asp
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For
additional media reports on this topic, click on... http://www.djurdjevic.com/clip.htm
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