IBM: Latest earnings report to be released at 4:15 p.m. today
IBMers, stockholders and those who ponder buying Big Blue all share one question these days.
Does IBM really have a path up?
You may not think so if you examine the chart of share prices for the last year. It's a downer, mostly.
But IBM's strategy story is that it is restructuring for a brighter future into key areas of growth while hanging on to those legacy portions that still pay off and ditching those that don't.
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Mainframe computers made in Poughkeepsie, for example, are one story that's still good, with a massive installed base around the world and so-far healthy sales of the latest z13 model. Down the road in East Fishkill, the former IBM semiconductor plant exemplifies one of the areas that was costing too much for executives to justify. The chip-making business was transferred to GlobalFoundries, workforce and all, July 1.
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Monday's earnings report will not, in the consensus of brokerage analysts, offer any cheery numbers. On average, they expect IBM to post earnings per share of about $3.30. That pales against 2014's $3.68. They expect revenues from operations to come in at $19.61 billion, which would be a big drop from $22.4 billion one year earlier. This appears to be the 14th straight quarter in which the money coming in will be less than it was in the same quarter a year earlier.
Brokerage opinion seems mixed, with Drexel Hamilton initiating coverage Oct. 9 with a "buy" while Cantor Fitzgerald started with a "hold" rating. In July, JPMorgan Chase lowered its price target and went to "neutral."
IBM's stock chart offers little hope, if you're looking out the rear-view window. There was the big plunge one year ago when IBM staged an early morning announcement that it was transferring its semiconductor manufacturing business to GlobalFoundries, and paying them $1.5 billion over three years to do so.
The same day, IBM broke a long tradition of afternoon post-market earnings announcements by coming out with an early morning release at an hour when roosters were crowing — but IBM wasn't. The contents disappointed investors. Shares plunged over the next few days by about $20, going down to $161.79 by Oct. 22.
A summer rally brought the price up to the $170 range, but it collapsed in late August, closing as low as $140.96 on Aug. 25. October has produced a very modest rise. Friday, shares closed at $150.39, up $0.30.
October's rise, however, leaves the stock even lower than the October 2014 drop.
But for long-time holders of shares, including thousands of IBMers who still live or work in the mid-Hudson, the ups and downs of the price are not the only factor. There's the dividend. It's a fairly fat $5.20 a year or $1.30 a quarter, having been boosted by the directors for the May payout, the sixth boost since 2010. This leaves the yield at 3.4 percent.
The September dividend was the company's 402nd, the first one having been $1 paid on April 10, 1913.
The company still generates billions in free cash flow, enabling it to plow some back into stock buybacks, a way of taking its own shares out of circulation and thus artificially boosting the value of the remaining shares, or at least preventing them from falling even farther.
The future, as IBM's leaders have often said, involves more work in remote "cloud" computing, a focus on mobile applications and other strategic areas, which are big data, analytics, security and social media. Much hope has been placed in the Watson technology, which is a learning computer that deals with natural language.
CEO Ginni Rometty told Fortune magazine recently that Watson is "our moon shot." This trend will be the most disruptive one in technology, she said, as "digital business marries up with what I'll call digital intelligence.
"It is the dawn of a new era, about being a cognitive business," Rometty said. "Instead of being disrupted, you are the disrupter."
Global currents push against IBM. Until about a year ago, Big Blue was enjoying growing fruits of its push into the "emerging markets," where adoption of modern computing is happening faster than in the developed markets. And, America's dollar has strengthened against currencies of "rest of world," which may sound good, but it actually works to IBM's disadvantage.
Most of these initiatives are not the stuff of instant success, so investors may have to wait a while to see if IBM can find that path up that will show in its numbers, not just its chatter.
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Craig Wolf: 845-437-4815, cwolf@poughkeepsiejournal.com, Twitter: @craigwolfPJ
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For coverage of IBM Corp.'s third-quarter earnings report Monday afternoon, follow reporter Craig Wolf's tweets at @craigwolfPJ and see www.poughkeepsiejournal.com. The approximate time of the earnings release by IBM is at 4:15 p.m. Monday. Reporting later in the evening will include key points from the company's briefing of analysts.
