Blood Red From Big Blue: Why IBM Is Crashing, In Charts

Tyler Durden's picture

Remember when three short months ago we revealed what was "the scariest chart in IBM's history", namely the one, showing IBM's total debt to equity ratio, which has exploded and surpassed Lehman highs, as the company scrambled to issue more and more debt and use it to repurchase more and more stock?

With this chart, incidentally, we also explained why IBM's ridiculous stock repurchasing strategy, which had seen $37.7 billion in stock buybacks since 2012, or more than the total debt issuance of $33.6 billion during the same period...

... could not continue and why, inevitably, IBM would have a massively disappointing quarter.

Well, that quarter just hit, when moments ago in an early press release, IBM reported abysmal adjusted EPS of only $3.68, a huge miss to the
$4.32 Wall Street expected, mostly a function of one simple thing: the
buyback "strategy" finally hit a brick wall.

Incidentally, we predicted just this in "The Great Stock Buyback Craze Is Finally Ending." And sure enough, IBM's Net Debt explosion has finally started to recede as even Big Blue is suddenly worried about a very blood red downgrade by the rating agencies.

Don't worry though: there is some hope, if not much, now that the genie is out of the bottle that IBM will revert back to what it does best - financial gimmicks - quite soon:

At the end of September 2014, IBM had approximately $1.4 billion remaining from the current share repurchase authorization. The company expects to request an additional share repurchase authorization at the October 2014 board meeting.

Funny: so does everyone else.

* * *

Ok, fine, the financial engineering of IBM's EPS is finally over, right on schedule, but what about its top line?

Well, it is here that the disaster really shifted into overdrive.

As the first chart below shows, Q3 revenue of $22.4 billion, a huge miss to the consensus $23.37 billion, was the lowest quarterly revenue since... Q1 2009!.

And, just as bad, on a Y/Y revenue change basis, the 5.6% drop was the biggest annual decline in revenue since the Lehman Q3 2009 comp, when sales plunged 6.9%.

Finally, now that the financial engineering no longer fools most of the people all of the time, IBM is finally forced to admit the truth:


Bottom line, at last check IBM shares were down over 8% premarket, an instant loss of $15 billion in market cap, and is dragging the broader indices far lower. Surely, the GIPF will be busy doubling down on its purchases of IBM stock in today's session.

And now the time has come for companies to finally sit down and do the math on the IRR on all those hundreds of billions in stock buybacks.

And the aftermath...

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SilverIsKing's picture

International Buying Machine

GetZeeGold's picture



Don't those guys make typewriters?

Headbanger's picture

Punch clocks

Buybacks not only reduce the share float to boost EPS, etc

They also reduce the shares available to short.

But it isn't going to work this time.

Leonardo Fibonacci2's picture

IBM makes computers?  Remember when a computer was the size of a 3 1/2 appartment?



signed, "the clipboard guy"

stinkhammer's picture

IBM's artificial intelligence workin!!

Arius's picture

Hong Kong protest's first casualty ... isnt IBM owned by the Chinese?

RadioactiveRant's picture

Nah its all American, you're thinking of the consumer products arm which was purchased by Lenovo.

NoDebt's picture

IBM is 7% of the Dow Jones "Industrial" Average index.  It's second only to Visa (another obviously "industrial" company) in the weightings.  Remember the Dow is share price weighted, not market cap weighted.

Time to boot IBM out of the Dow, methinks.  Maybe put Chipotle or NetFlix in there in it's place.

The Big Ching-aso's picture

IBM, UBM, WEALLBM. This market is one giant turd.

Save_America1st's picture

gee, they better remove IBM from the DOW top 30 avg. and replace it with Google, Twitter, or Alibaba...


wouldn't want the market to "look bad" and go down again just because IBM can't fudge the numbers anymore.

IBM is #2 in the Dow average just under VISA and above Goldman fucking Sachs.  LOL

Shocker's picture

Just another company, excelling in this recovery

Layoff List:


BiggerInJapan's picture

When they stop making the thinkpad was terrible error.


last generation of LENOVO thinkpads as some terrible design changes that would have not been done in IBM if there still where IBM engineers around.


but I blame mostly Halt and Catch Fire TV Show, nothing like massified bad publicity to kill the half living.

eclectic syncretist's picture

And now that these companies have bought so much of their own stock with money that they didn't have, they'll have to suffer all the losses when the price of the stock declines.  That means that as equities decline, earnings will necessarily decline too, and that the ultimate bottom will be that much further down.  Way to go CEOs.  Big Blue BLEW CHUNKS in their boardroom all over the company some time ago, all just to quickly line the pockets of the board members, and at the ultimate cost of company profitability.  They should all be jailed for what is going to happen.

philipat's picture

Just as a point of information, that isn't actually correct. Bought back shares are taken into the Balance Sheet as "Treasury Stock", which can be held or re-issued later. But there is no PNL impact. But, yes, it is a one-way, one-time piece of financial engineering. As with all else these days. Because it does, of course, have the intended effect of increasing EPS with earnings spread over a smaller number of shares. And, of course, nobody these days pays any attention to GAAP earnings.

syntaxterror's picture

"gee, they better remove IBM from the DOW top 30 avg. and replace it with Google, Twitter, or Alibaba..."

If you like your DOW 17,000, you can keep your DOW 17,000.

philipat's picture

IBM is symptomatic of US problems in general. It doesn't actually MAKE anything any longer. Consulting, financialisation, share buybacks, all of which can only continue for so long? Now coming to an end. Another dead American icon. Big Blue, Big Mac, Big Nothing...

ebworthen's picture

Yup.  Do they even make a machine anymore?

IBM = International Business Moneyshufflers?

gallistic's picture

And right on cue, IBM's CEO Ginni Rometty called the corporate brothel CNBC and requested a prostitute, er...presstitute.

David Faber dutifully goes to IBM's corporate headquarters to assist in damage control and help IBM "get their message out" via an "exclusive" one-on-one interview.

Cunnilingus ensues...

philipat's picture

No fellatio? On second thoughts, neither would be very appealing....

duo's picture

Like I said before, GS and JPM manufacture fraud, and VISA manufactures human misery, ergo, they are "industries".

conscious being's picture

Rent farming boiling frogs for profit has been a growth industry for decades.

MeMongo's picture

Maybe they could just re introduce the ibm 5150! 

Could only help at this point!

Budd aka Sidewinder's picture

Man you're taking me back...



anyone anyone?

JohninMK's picture

Mmmm 360/65, those were the days. Real money in the commision scheme.

yogibear's picture

"Don't those guys make typewriters?"


The MBAs took over.  Now it's all financial engineering and book cooking for IBM and other companies.

Anglo Hondo's picture

The financial "Selectric", from 1961.  When financial shit made sense.


Sokhmate's picture

International biryani machine

Groundhog Day's picture

The good news is all the bad news is out now so the stock is a screaming buy here

goldman analyst

natty light's picture

Selectric. Learned how to type on one in high school. It weighed about 25 pounds.

john_connor's picture

Time to remove them from the Dow and refreshen the ponzi.

swass's picture

@SilverIsKing "International Buying Machine"

So what you're saying is that the Fed uses IBM?

JPM Hater001's picture

Totally understand the need for ad revenue but mid story and constant popup over the chart was a bit annoying.

Croesus's picture

There's an app for that. 

Adblock plus, and Ghostery plugins for your browser = ads you'll hear about, but never see. 

LULZBank's picture

And all the missed jokes, gossips and the pics of paintbrushed women in hot pants.

Is it worth it?

nightwish's picture

Breaking news- IBM wants to acquire Sperry Univac!

duo's picture

what's that gross looking thing that looks like a miniature breast implant? I'm not clicking on that link.

LULZBank's picture


miniature breast implant


Kind of fails the pupose, no?

Surfing ZH at work risks people taking you as a pervert.

MeMongo's picture

Mr. Croesus

Honest question! Is there something for a tablet? If so Mongo is just stoopid enough to NOT find it.

bbq on whitehouse lawn's picture

You can try turning off Java, or javascrip you might even want to turn off pictures as what you want is text. That might help. I dont know what browser your useing so you have to play around with the settings, tools and such. Remember you cant break it and have fun turning things on and off.

MeMongo's picture

Mr bbq! Thank you sir! Java did it! Just a simple fukin button. See why Mongo is only a pawn in the game of life?

LULZBank's picture

You sure you dont want to meet the Travel Girls? Or the Refined women of

MeMongo's picture

They just laugh at Mongo!

LULZBank's picture

Mongo needs some juicy mango ;)

eclectic syncretist's picture

Refined like the child pickpockets in Rio de Janeiro?

conscious being's picture

Mongo eat beans and install Netscape Firefox browser on you tablet. Use Netscape to browse the internet. In Netscape open bookmarks. There is an installed bookmark for add ons. Click on that. Search add ons for Ghostery. Install, enjoy. Browser runs faster w/o profiling software trying to serve you a custom flavored ad. In Ghostery options, there's a way to dissmiss the screen hogging icon.

MeMongo's picture

Thank you kindly Mr. Conscious! Although you just made Mongo's hungover mind spin He will muster through with a fine attempt at this! Thought tablets would be like running water ....turn it on. do my thing...turn it off.....close but no cigar! Thanks again

duo's picture

I just don't browse ZH on a tablet anymore.  Waste of time.

I could post a screenshot where 90% of the ZH front page is ads with that stupid pop-up in front.  We may have reached peak tablet unless Firefox or someone can block this crap on tablets.

MeMongo's picture

Cant see banzai...fully.....all vids are half screen covered bythe big ass grey banner on the right....oh well at least the content is free, and helps to keep Mongo the cynical  bastard he is!

Stormtrooper's picture


Double click on the Banzai photo or video. It should open in a new full screen window.