Wednesday, April 19, 2017

Why You Should Put IBM's Stock in the Garbage Can and Then Light It on Fire

Any granny or pop-pop sitting at home trying to decipher what IBM (IBM) said on its earnings call Tuesday evening would have a hard time -- most of it may not have been in the English language. Talk about corporate speak (and attitude -- the tone of the call sounded as if IBM smashed estimates and is close to curing the common cold) in its finest form.

Here is the bottom line, for those old folks collecting IBM's quarterly dividend: put the stock in the trash and light it ablaze. It's very likely, after the quarter IBM just had, that shares will get re-rated by the market, for one simple reason: Investors are likely to more closely scrutinize the tech giant's transition from a hardware entity to a software and services provider. How could one not do this?

IBM's sales have declined for 20 straight quarters, in large part due to weakness in hardware. For the first quarter, sales from IBM's hardware and operating systems segment plunged 16.8% to $1.4 billion. Meantime, revenue at the company's consulting business dropped 3% to $4 billion.

The cloud business fell short of Wall Street's estimates, as IBM blamed the timing of contracts being signed. Despite cloud sales rising 33% to $3.5 billion, you didn't get the sense the business -- which has been built up through acquisitions -- is poised to grow at a rate that soon wipes out softness in hardware. Not when Amazon (AMZN) and Alphabet (GOOGL) are also major players in cloud.  (more...)


H/T to Watching IBM

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