IBM battles to get ahead in cloud game
A century after listing, shareholders hope Big Blue can reinvent itself once again, writes Jing Cao
ON NOVEMBER 11 1915, exactly three years before the end of the First World War, IBM first listed on the New York Stock Exchange — its name then Computing-TabulatingRecording Company. With the stock down 16% this year, some investors are weighing whether to hang on as IBM starts a second century.
IBM made no big deal of yesterday’s 100th anniversary, which comes at an inauspicious time. Its stock has been the second-biggest drag on the Dow Jones industrial average this year. Since IBM was added to the index on June 29 1979, it has grown just 1,700% against more than 6,000% for the Dow.
“A number of trends have passed them by,” says Ivan Feinseth at Tigress Financial Partners. “There goes social, mobile, big data analytics, cloud — and IBM is trying to play catch-up in all of those.”
The company has been lagging behind as enterprises buy fewer mainframes and more data and services are hosted offsite. As a latecomer to cloud technology, IBM has posted 14 consecutive quarters of declining revenue.
IBM also spent too much cash on stock buybacks earlier in the decade — money it should have used to acquire fast-growing businesses or invest in developing products inhouse, says Vahan Janjigian at Greenwich Wealth Management.
Still, if you had bought a share of IBM when it first listed on the NYSE at $47, you would now own 11,879 shares with a value of $1.6m, according to the company. IBM has its admirers, such as Warren Buffett, the biggest shareholder through Berkshire Hathaway. It has been adding to its hoard, even after posting $2bn in unrealised losses on the stake in the third quarter.
IBM has successfully transformed its business multiple times in the past, which accounts for part of the faith investors have shown.
Some analysts and investors say there is some cause for optimism, as long as IBM can keep gaining ground in the transition already under way.
It needs to prove that it can succeed in cloud technology. In 2014, cloud revenue totalled $7bn, less than 10% of sales. That needs to be more than 15%, according to Dan Morgan at Synovus Securities.
It must reach its $40m goal for new businesses and have them account for 40% of revenue by 2018. The company is showing promise in mobile, security and analytics, Louis Miscioscia at CLSA says.
Software sales must provide a larger share of overall revenue as it is more profitable than services and hardware, Mr Janjigian says.
To be sure, investors can rely on getting cash from IBM; it has declared consecutive quarterly dividends since 1916.