IBM cannot grow anymore

Does this aging technology company have anything to offer to shareholders?

By 247 Wall St. Apr 19, 2013 11:35AM

Arrow Down © Kyu Oh Photodisc Getty ImagesBy 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.

 

More from 24/7 Wall St.

11Comments
Apr 20, 2013 6:54AM
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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.

Apr 21, 2013 2:03PM
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Window of opportunity .IBM is way beyond the "computer " company profile it is an advanced science institution on forward edge of creative developments in areas where it has no peer.Artificial thnking will be its' future contribution among others .I would B uy M ore
Apr 20, 2013 8:29AM
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IBM is a company that has shown it can do what it needs to do in order to be successful. Analysts had the company DOA in 1990, but were wrong then as well. Why is the company selling some of its operating units? Its implementing a strategy that has made it successful since Sam took over. They sell off technology as those technologies become commodities, and use the cash to acquire companies that have newer, higher margin businesses. It may, or may not limit top line, but it allows IBM to maintain/improve margins without the counterproductive cost cutting that has hampered other large companies. So buying IBM is really like buying a tech index fund, actively managed by the executive leadership there.
Apr 21, 2013 10:05AM
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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

Apr 19, 2013 2:43PM
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Remember the rule about bandwagons... when everyone is on-board waiting for windfall profits, the wagon tends to careen off the edge and falls... not windfalls.
Apr 19, 2013 1:48PM
Apr 19, 2013 11:00PM
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IBM is getting battered by the stock market manipulators. IBM is the best buy on the board. They want you to get rid of IBM and buy gold or oil and even face book. Buy as much IBM as you can afford, It will Split 2 for 1 right after the Stockholders meeting. Warren Buffett will become our 1st Trillion air, he will then get IBM to track all his Railroad Growth. Get rid of your gold and oil holdings, you can't even buy a loaf of bread with it.
Apr 19, 2013 3:28PM
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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... 

Apr 19, 2013 2:42PM
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Not hard to answer... they sold their tangible assets off to concentrate on... what? Somebody in the Boardroom had to remember to tie the string on their airheads to something Earthbound. Bye bye big tech... welcome to the global train wreck.
Apr 21, 2013 10:54AM
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I think IBM should have stayed in the residential computer market selling PC's, and laptops like HP has.  The decision to just produce computers for business custoners was really limiting their ability to compete. They went for the big money markets and are paying for it now.
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