Blog Post

It’s Wednesday morning and it’s already been a tough week for IBM

Earlier this year, IBM(s ibm) reportedly tried to sell off its server business to Lenovo, which already owns IBM’s former laptop business. That deal didn’t work out, but IBM might be wishing it had right about now, given the latest news out of its hardware unit.

On Tuesday, Credit Suisse downgraded IBM to “underperform”  citing headwinds to growth. In a research note, CS analysts wrote:

“Organically we believe IBM is effectively in decline, and we see rising headwinds ahead with: i) 34% of gross profit dollars coming from Mainframe and UNIX hardware and associated software, which we believe are under pressure; ii) the shift to cloud continues to present risks given IBM’s technology positioning; and iii) strategic portfolio management is likely to have less of an impact going forward given the smaller potential for divestitures (x86 and Microelectronics), and multiple expansion in the software space limits IBM’s ability to acquire as effectively as in the past. “


That same day, news broke that IBM is putting most of the hardware development and procurement staff on mandatory furlough at 1/3 pay for a week.  Execs in the group will take no pay for the week. While furloughs are not unprecedented at IBM (or other tech vendors for that matter), they’re obviously not a good sign. According to The Burlington Free Press IBM just layed off 419 employees, mostly in IBM’s Systems & Technology group, at the local Essex Junction, Vermont facility, as part of an estimated 3,300 job cuts across the country.  Sales out of that Systems and Technology Group were off 12 percent year over year in IBM’s second quarter, to $3.76 billion.

The news came just after IBM announced new x86 and Power-based Flex systems and plans to license its Power CPU design in a bid to boost market share vs. Intel which leads the league in server processors.

No doubt part of this problem is IBM-specific, but in general name-brand server makers — including Hewlett-Packard(s hpq) and Dell(s dell) — are all under pressure as more workloads flow to cloud computing where they are often run on commodity (i.e. no-name) servers bought in bulk.

4 Responses to “It’s Wednesday morning and it’s already been a tough week for IBM”

  1. Cdelaware

    The recent Credit Suisse (CS) analyst report on IBM and CS’s subsequent downgrade of IBM is misleading, and unethical. The report is difficult to read and understand; it includes numerous confusing and irrelevant charts and tables, with key information hidden in foot notes. It takes hours to understand this report and what’s wrong with it. And, of course, CS released the report just after IBM reported furloughs to have maximum impact.
    CS acknowledges that IBM will make its projected $20+ EPS in 2015, and have a PE for 2013/2014 (@$195) of 11.5x/10.6x, which is 20%-25% lower the S&P 500 and other large tech companies. But CS focuses on price per “free cash flow” (FCF) for 2013/2014 that is 21.5x/15.9x, which is 59%/35% worse than (premium to) the S&P 500 average and equivalently worse than other large techs.
    The problem is that CS uses a nonstandard definition of FCF, which subtracts off M&A and financing of receivables. Their FCP estimate is roughly $5 billion less than IBM’s reported (standard definition) of FCF. This CS definition is hidden in a footnote. Then CS compares this newly calculated FCF to the FCF of other large tech and S&P 500 companies to come up with their comparison. But consider Oracle as an equivalent large tech example. Oracle also uses the same “standard” computation for FCP that IBM does and doesn’t include its $4 billion or so in M&A. So if you subtract off $5 Billion of IBM’s FCP and then compare it to reported FCF by Oracle or other equivalent companies, then surprise, surprise, surprise, IBM appears much worse than these other companies.
    It is not unreasonable to use the CS definition of FCP as long as it is applied consistently. CS argues that their definition of IBM’s FCF is justified in that IBM needs its M&A just to maintain core revenue and earnings—questionable. But then, CS essentially double counts/uses circular logic. After taking out M&A, CS argues that IBM doesn’t have sufficient FCP to support future M&A activities. Hello!
    This is obviously a calculated attempt to deceive the public. The SEC should be investigating CS, because they obviously gamed the market and have shorted (directly or indirectly) the market and will be shortly covering the shorts and go long.

  2. jackiecox

    CREDIT SWISSE represents the one place criminality throughout our world can hide their illgotte gains and if necessary buy swiss citizenship to eliminate the idea of extradition and prosecution. Information technology that can develop data bases that expose criminality and identify where the buck stops (SWISS BANK ACCOUNTS) could be expected to do all within their power to disable information systems of eventually eliminating the swiss banks as a place where you can hide the stolen loot.

    For any financial world class mafia magnate to try and destroy IBM and the cuture where reality is exposed can be expected… but…words are cheap, and you may have trillions in reserve, but that does not imply it was obtained honestly, or CREDIT SWISSE is anything more than they are…the good news is that time changes all things, In these new times a real information revolution is afoot that will indeed change the world. In time when the federal reserve is removed and identified for their ongong theft of more than 100 years, the more than 100 trillion of assets acquired with stolen american taxpayer money, will in due curse be returned to the american treasury, from where it was taken.

    The swiss alps may have historically made it near impossible to take over switzerland with conventional military equipment and personnel, but, that was then and this is now. the idea stolen funds are safe in switzerland is mythology, as is the idea the trading clan will continue to control the world money supply and flow of goods. the end of their age ” theft and dishonesty ” steal at will and murder anyone who wants to remove you from controlling our nations money supply is at an end of time, and the assets acquired with stolen american taxpayer funds will be returned to our nation, switzeland be damed.

    CREDIT SWISSE states ” IBM ” the world leading information instrumation company is on the decline is about as bizarre as credit swisse, and the judaic red heifer it rode in on,

    time changes all things, only truth survives time, lies and dishonesty are and always will be lost to time

  3. Mcbeese

    IBM is populated by dozens of MBA-types at the top. In other words, ‘administrative’ leadership. That works during periods of market stability, but it breaks down when the market starts disrupting and requires more visionary leadership.