of IBM’s First Quarter Business Results
Waiting for Godot…
Global Services’ Growth Stalls, Hardware’s Plummets 12%
Apr. 20 – Hope springs eternal.
When all else fails, a prayer might have to do.
That’s about all that’s left for the enthusiastic
supporters of the IBM stock. Many
are still clinging to it like a dog with a bone, hoping and waiting,
hoping and waiting…
Waiting for what?
For the flesh to grow back
on the bone? For Wall
Street to turn sane? For
“Louis XIX” to abdicate his throne?
Better not to ask.
For, you won’t get an answer to such questions anyway. Just as you’ll never find out what Estragon and Vladimir
are waiting for in Samuel Beckett’s “Waiting for Godot.”
Indeed , this masterpiece of the
“theater of the absurd,” written in French in 1948, translated
by the author into English, and first performed in London in 1953,
very much epitomizes the current situation with the Big Blue stock
on Wall Street. Things
are suddenly looking so bad after seeming so good for so long that
everybody is hoping for something momentous to happen; something
that would bail them out of a losing investment.
It won’t happen.
It was never going to happen.
Smart money left the IBM stock a long time ago.
Smarter money never got into it.
Yet, those with large sums of money on the line are holding
on to IBM, waiting and hoping for Lou Gerstner’s final miracle.
won’t happen. Gerstner’s
black hat is clean out of rabbits.
IBM executives first signaled last Fall that their ship had sprung
some big leaks, they blamed it on the Y2K bug.
We said that was “an excuse, not the reason.
And a lame excuse at that” (see “Big
Blue Sings Y2K Blues,” Annex Bulletin 99-32, 10/21/99):
“The Y2K issue has been well known and
researched for years. So
for IBM executives suddenly to wake up after one down quarter and
then realize what had hit them is almost comical.
Especially after IBM's chairman and other insiders have been
selling stock (see "Gerstner:
Best Years Are Behind; Dumps 328,000 Shares Worth $40.9M" -
Annex Bulletin 99-28, Aug. 10, 1999).”
The Y2K bug has now long come
and gone (see “The
Bug That Didn’t Bite”).
Yet IBM troubles are continuing, as was evident from its
first quarter business results.
Consider the following highlights:
Hardware revenues, still 40% of
IBM, were down 12%;
Global services, now also 40% of
IBM and the company’s only real growth business, were flat (i.e.,
the only real growth business reported zero growth in the first
Software, which represents about
one-third of IBM, was also flat.
“Lou’s Kitty” as we called it last year (see “Armonk’s
Fudge Factory”), was down 13%;
Global financing, only 4% of
IBM, turned in a 16% revenue growth;
So only one of IBM’s business
segments was growing in the first quarter.
Alas, since it represented only a tiny 4% slice of the
company, the overall Big Blue revenues also declined by 5% since a
bad, huh, for a Wall Street highflyer?
Well, IBM’s top of the line was relatively “good news”
in a bad quarter. Even though the company managed basically a flat bottom line
(net profit), some of the segment revenue and pretax numbers were
downright disturbing. Here
are some highlights:
Technology (OEM) revenues were
down 11%, eking out a pretax profit margin of only 0.6%;
PC revenues were down 13%, with
the pretax loss widening to $178 million from a loss of $55 million
a year ago;
Enterprise systems revenues were
down 11%, while their pretax profits dropped 20%;
Global services revenues, flat
by our previous account, were actually down 1% once internal
revenues were taken into account;
Software revenues were also down
1% by the same standards, while its pretax profits declined 18%;
(“Lou’s Kitty”) 13% drop in revenues also carried a $43
Overall, the aggregate pretax
profit from IBM’s business segments declined 7%.
Balance sheet highlights were
just as disturbing :
Net cashflow was a negative $2.2
Equity was down $1 billion
(since Dec. 31);
Cash was down $1.8 billion (since Dec. 31);
Core debt was up $600,000 (since
Stock buybacks continued
unabated, with $2.1 billion wasted on this in the first quarter, the
same amount as in the fourth quarter 1999;
And how did the stockmarket
react to such a breadth and depth of bad news from IBM?
It shrugged it off. Too
many tens of billions of dollars at risk to risk using sound
business judgment when judging IBM’s real worth.
And so, since the day IBM
disclosed last October that the Y2K bug would bite it, the Big
Blue’s stock has appreciated (!?) 23%.
gets “madder.” Since
July 1996, roughly the time IBM went on a stock buyback binge,
squandering about $34 billion dollars on it without creating a
single product or a job, the IBM stock outperformed the record
bullish Dow Jones Industrial average, of which the Big Blue is a
part, by 3.5 times!
set and match! For the Wall Street Lunatics over the Main Street
Happy bargain hunting!
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