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Word to IBM: Let’s lose the long-term earnings guidance and move on

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Almost everyone outside of IBM’s executive suite now agrees that the goal of hitting $20 earnings per share by 2015 did more harm than good. In its attempt to get to that magic number — promised by former CEO Sam Palmisano in 2010 — IBM has laid off thousands of employees and sold or attempted to sell off less profitable businesses, in moves seen by many as counterproductive for the long haul.

On Tuesday, [company]UBS[/company] analyst Steve Milunovich said these long-term projections are not worth doing in this era of tech realignment and that IBM needs to focus on long-term strategy instead of EPS goals. IBM’s trailing twelve month EPS is $14.85, so it has a tough row to hoe between now and the end of its fiscal 2015, which would be Dec. 31, 2016.

IBM Normalized Diluted EPS (TTM) Chart

IBM Normalized Diluted EPS (TTM) data by YCharts

“We advocate guidance that does not target a long-term EPS number,” Milunovich wrote in a research note released Tuesday morning.

He added:

We think IBM should (1) give annual and perhaps next quarter earnings and cash flow guidance but not beyond; (2) build on the analyst meeting by providing consistent metrics round three segments: strategic imperatives, recurring core franchises, and transacaitonal businesses; (3) provide more detail on the overall financial impact of cloud and Big Data on financials.

IBM should also think about using its cash to pay dividends rather than share buybacks and (shock) emphasize long-term principals–“margin over revenue” —  he noted.

For the record, Milunovich himself thinks [company]IBM[/company] will hit the target, but the question is what it has to do to make that happen. If it makes the number but only because of low tax rates and layoffs etc., what does it really mean?

IBM CEO Ginni Rometty, who took the reins in January 1, 2012, has done her best to hew to her predecessor’s roadmap and has bet big on cloud, big data and associated analytics including the $2 billion acquisition of SoftLayer last year. She also recommitted to the $20 EPS target in May. But now that many investors and analysts including Sanford Bernstein’s Toni Sacconaghi, have called the EPS goal irrelevant, she may have enough cover to change course. IBM is slated to announced results for its third quarter ending September 30, on October 14.

Current IBM CEO Ginni Rometty with her predecessor Sam Palmisano.
Current IBM CEO Ginni Rometty with her predecessor Sam Palmisano.


Feature photo courtesy of  Flickr user redjar

5 Responses to “Word to IBM: Let’s lose the long-term earnings guidance and move on”

  1. LittleGuy

    Well, the rich get richer and the poor get poorer. I have been a loyal IBMer for 25 years. So what do they give me for that loyalty and ever evolving role I’ve played. Here is a letter I received from my manager on Sept 12, 2014. It implies I can fill these so-called skill gaps (which don’t exist), or else. My guess is it’s a conjured up way of getting people to leave the business.

    Dear employee,

    As we discussed, as the needs of our client changes at a rapid pace, the skills of our GTS SO employees must evolve even faster to build the skills critical to our clients and to competing in the market. A recent assessment revealed that some GTS US SO executives, managers and employees have not kept pace with acquiring the skills and expertise needed to address changing client needs, technology and market requirements.

    You have been identified as one of these employees. To help you advance your skills and expertise to meet client requirements, be more competitive for career opportunities, and ensure future success of the GTS US SO business, from October 16, 2014 through March 31, 2015, you will dedicate up to one day per week (up to 23 days total) to focus on learning and development. A sample of learning paths and resources available is attached (XLS file).

    During this period, we will work together to rebalance your workload to account for the time you will focus on your skills and expertise development. While you spend part of your workweek on learning and development activities, you will receive 90 percent of your current base salary.
    This adjustment to 90 percent of your current base salary is effective October 16, 2014 and will be reflected in the pay period ending October 31, 2014. Your salary will be restored to the full rate effective April 1, 2015 and will be reflected in the pay period ending April 15, 2015.
    You will receive the same benefits you do today. However, your and the company’s 401(K) Plus Plan contributions as well as your Employee Stock Purchase Plan deductions will be based on your new adjusted salary through March 31, 2015. You have the ability to change your salary-based deductions. MoneySmart is a service available to you for personalized financial counseling at no cost.
    You may apply for opportunities for which your skills may be a better match via the Global Opportunity Marketplace (GOM). You also have the opportunity to register with the IBMer Assignment Agency which offers skills matching that will help identify open positions in GOM for you to consider.
    Please review the enclosed Employee Information Packet for important details about this measure – including your compensation, benefits, and skills development – as well as the learning paths materials, and please retain them for your reference should you have questions.
    GTO SO remains focused on delivering high level results to our clients – individually and as a company. I hope you will use this time to advance your skills and expertise. Your continued focus and professionalism in the months ahead is appreciated. Thank you.

    Signed by immediate IBM manager with title.

  2. Wanderley

    Steven Milunovich should just have told IBM to read Robert Cringely’s recent book “The Decline and Fall of IBM”. And that book could even have been a better source for this article.

  3. The entire corporate fictionhood is a scam to allow people to privatize profits, socialize losses, and avoid criminal charges for wrong doing. IBM senior mgmt. is a pro at this.