IBM cannot grow anymore
Does this aging technology company have anything to offer to shareholders?
By Douglas A. McIntyre
International Business Machines (IBM) has lost the capacity for revenue growth. The troubling trend began a long time ago. Its recent earnings confirmed that the huge tech company has run out of opportunities to get more sales from both existing and potentially new clients.
In response to a quarterly revenue year-over-year drop in the first quarter, IBM's management may have decided to make the company smaller. Rumors have IBM selling its server business to Lenovo, the company that bought its PC division in 2005.
In the most recently reported quarter, IBM's revenue was down 5% to $23.4 billion. To make matters worse, IBM's revenue dropped at each of its four operating divisions. And in its systems and technology group, which houses its hardware operations, revenue dropped 17%. Net income for the whole company only rose 3% to $3 billion.
IBM has most of the hallmarks of aging public companies that have lost their capacity to expand except through M&A activity. It shares these characteristics with other very old American companies such as Procter & Gamble (PG) and AT&T (T). Each faces too much competition and has shown no evidence it can improve its position against most rivals.
IBM's revenue last year was barely better than in 2008, before the recession. And its revenue has risen less than 9% since 2004 -- barely a percentage point each year. Profits have improved, but mostly due to cost cutting.
IBM's struggle to add sales comes from two sources, although it is hard to say which has been more damaging. The first is that the competition for most of its products and services includes other very big multinationals like SAP, Oracle (ORCL), Microsoft (MSFT) and Accenture (ACN). In sum, they have flanked IBM, at least to the extent that they siphon off enough of IBM's potential clients to keep the company from rapid expansion. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
The other problem IBM has is one of innovation. Innovation is a marker of rapid growth in the technology business. IBM has been unable to use advances in products or services to create the kind of expansion that the most successful tech companies have.
Ultimately, there is nothing wrong with IBM's revenue flatline. Earnings can continue to rise due to judicious control of expenses. The value of the company's shares can be helped by a high dividend and share buybacks. But that is all the leverage IBM has to impress investors.
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"IBM is getting battered by the stock market manipulators."
You don't know anything about IBM, do you? In the Dark Ages of Computer Technology, IBM was an integral component of that era's Open Forum with one exception... they claimed everything for itself. The primary code in most of it's programming was group-created. One particular segment of it was bought and copyrighted by another company. IBM sent in massive armies of lawyers trying to destroy that company by legal-costing them out of business. The copyright prevailed, IBM lost and that stock popped from a few cents to many dollars. IBM sold the Thinkpad to Lenovo. TP was one of the most reliable laptop lines in existence with more future potential than to become a cheaply made knock-off. There is no place in the world for nebulous bulbous intangible giant tech firms, especially as we have to retrace corporate exploitation and rein in controllers abusers and law firm goons. The stock isn't "manipulated" by stockholders any more than other stocks. You bought into an iconic name expecting it to be a stalwart. It's a rock in a river getting covered with sand without the assets to make someone want to go find it.
So much focus on shareholders and making money, IBM will and continue to "innovate" cost cutting measures for the benefits of the shareholders at the expense of the employees. I know we all invest to make money but this is stealing from one group, the employees, to benefit the shareholders.
These kind of article encourage the top management to find ways to cut and cut and doing thing that hurts the morale, you are right, when the brightest are leaving, there will be nothing left of IBM
Crashes, my dear friend crashes...
Apparently you've never been on a "bad Wagon" like I have...??
V_L another funny story, I've got hundreds...!!
We put 4-5 kids on a small buckboard one time...With a small Welsh(big pony) drawing/pulling.
Neighbor/Friends horse and one of his kids driving, they all went out for a little ride for a mile or so.
The one driving had experience, not her first trip.
Something spooked the horse/pony about a half mile out.
We were all sitting around having a beer, when the Pony and part of the Wagon/cart came back.
All that was left was the pulling harness/tree, reins and bottom of the Cart..
NO wheels, axles or kids....Scared the poop out of us...
Kids and parts of wagon were scattered over a half mile, maybe a mile??
No ONE was hurt, not even the pony...We/they got very lucky...Never again by themselves or that Welsh...
Last one to bail was the Girl driving, she lasted until about a quarter mile from the house and walked in while we were catching/calming the horse...She wanted to kill the SOB...She was 14.
We picked up all the kids and pieces of wagon...A Couple got scratced up some..
Then we all sit around the campfire that night, with a story we could tell FOREVER..
Good times....And that was about 35 years ago...
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