For IBM The Buyback Frenzy Ends With A Bang As Q4 Revenues Plunge Most Since Lehman

Tyler Durden's picture

Remember when the only thing that drove IBM higher was a record amount of stock buybacks, duly noted on this website? Well, the magic of financial engineering for IBM appears to have come crashing down with a bang, not a whimper, because in the fourth quarter, with the rating agencies carefully watching its total debt/equity ratio, Big Blue repurchased a tiny $132 million in stock in the quarter - the lowest buyback in years.

 

Still, the lingering effects of the buyback continues as can be seen in the dramatic difference between IBM's Q4 Net Income of $5.5 billion, down 11.3% Y/Y, and its EPS of $5.54, down only 4.0% Y/Y.

Unfortunately for IBM, it better resume its financial engineering fast because this is where the bang (not the whimper) comes into play: in Q4, IBM's revenue was a modest $24.11 billion, far below the Wall Street estimate of $24.8 billion, and a whopping 12% less than what IBM generated a year ago. In fact, as the following chart shows, the annual plunge in IBM Q4 revenue was the worst since Lehman.

What was the culprit this time: the weather, the strong dollar, or plunging crude: we can't wait as the sellside narrative promptly changes to sucker even more muppets into what is shaping up to be Buffett's worst investment in recent history.

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rtalcott's picture

No BM like IBM....

JuliaS's picture

There is no "I" in IBM... oh wait. There is!

Romney Wordsworth's picture
Romney Wordsworth (not verified) JuliaS Jan 20, 2015 5:15 PM

Open the pod bay doors HAL.

 

DAISY ~ D   a  i z e    e

Vampyroteuthis infernalis's picture

IBM just makes crappy, trendy software these days. Nothing useful like back in the day. Chapter 11 is stalking.

nope-1004's picture

I don't believe Buffett's investment was without .gov persuasion, perhaps even a guarantee.  No one in their right mind would buy this behemoth.

Or maybe Buffett's mind isn't right..... lol

lotsoffun's picture

buffett got the guarantee.  but - it wasn't so direct.  it was, we bail out your extensive collection of financial companies, you spend money in the sp500.  i know he bought ibm, intel and i think some apple.

 

old naughty's picture

Big Blue continues with the blues.

No more: "Once an IBMer, always an IBMer."

H.A.L.-ed !

Caleb Abell's picture

I think they also make money consulting.  Which is kind of ironic considering that they were run out to the PC hardware and software sectors by a couple of college drop-outs (Dell & Gates).

Bunga Bunga's picture

I = Intelligence like in CIA?

RaceToTheBottom's picture

IBM= Indians, Badly Managed.

neidermeyer's picture

Real IBMers know it stands for I've Been Moved.

RaceToTheBottom's picture

How quaint, an American who remembers how IBM used to work.

That was the time when Americans were employed at IBM.

Bloppy's picture

IBM forgot the buyback trick, shares down

Netflix remembered the bogus accounting tricks, shares up

 

Want to work for MSNBC's Ed Schultz? Just don't be anything like him:

http://tinyurl.com/qcbcuvc

pudge94's picture

It's the only new job opening North Dakota will see until at least Easter.

post turtle saver's picture

I wouldn't piss on IBM if it was on fire

JohninMK's picture

They are not alone, many such announcements on the way.

Alea Iactaest's picture

Yeah, for everyone selling IT in China

pitz's picture

Time to send the hoardes of incompetent IBM H-1B's packing. 

lotsoffun's picture

i work in manhattan, and there is nothing but h1b baby!!  cheap - cheap - do nothing, but allow the managers to say 'look how many people i manage at such a low cost.'

that is easy to measure empirically - but production - it really is more difficult to tell.  until, you ain't making money anymore, because your staff is a bunch of third world morons.

oh sorry - not everybody is a moron in the third world.  but when you aren't trying to hire the best, and simply hire warm bodies - what will you get?  warm bodies that agree to do the same job as someone else, for substantially less, because they have no bargaining power based on performance/quality.

 

pragmatic hobo's picture

... well, they did sell off 2 of their businesses ...

kowalli's picture

joyflation around the corner

weburke's picture

p/e 2000 the new normal !

Bell's 2 hearted's picture

long long ago i interned one summer at Big Blue

 

learned one thing

 

Never Ever work for a S&P 500 firm

Mayer Amschel Rothschild's picture

Management at all levels of S&P 500 businesses suck donkey balls.  Endless parade of brain dead MBA grads with no practical core business experience who have long ago divorced leadership from management's job requirmemnts.

Rainman's picture

It'll take a while for them to find somebody pc to blame for the continued revenue downturn< other than female management >

bluskyes's picture

IBM, the company that used to be...

Yen Cross's picture

It's ironic you say that. I think the BEST laptops for small businesses are HP. HP has gone "balls to the wall" with customer service.

  I really like HP Thank gooodness they toasted Carlie .(she) he wasn't the right person to run H/P

bluskyes's picture

I have yet to find a laptop that feels better than my old T43 - rugged, durable, and feels solid in the hands. No twisting, or flexing and the hinges are stiff.
My Asus is shit. Most Toshiba Satellite's I have used felt flimsy. Same with HP, Asus, Acer, Sony, etc...

Yen Cross's picture

 Thanks for your comment. I've built many a trading station with HP computing.

  Another thing! Bithchez   It doesn't matter how much you trade with if you manage your margin.

   Retail keeps the scumbag F/X traders in check. Art Cashin can go " fuuck Himself" It doesn't mater what your leverage is if you watch your MARGIN!

 FUCK YOU ART CASHIN!

Wait What's picture

I've got an old R series Thinkpad that is going on 11 yrs. I still use it every so often just to remind myself of how pathetic the quality is on just about every laptop being produced now.

Colonel Klink's picture

Fuck you big blue, hopefully you'll be big red for awhile.  Shithead executives have been selling out the American working in favor of globalization to cheap labor in China, Inda, and Brazil.

Die in a fire!

Yen Cross's picture

 How can you have debt/equity ratio, when you can't even define a P/E ratio?

 Ya gotta love ZIRP!

ArtOfLife's picture

Buffett is actually getting exactly what he hoped for:

 From the 2011 Berkshire annual letter:

 

"Today, IBM has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%.

Naturally, what happens to the company’s earnings over the next five years is of enormous importance to us.

Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares. Our quiz for the

day: What should a long-term shareholder, such as Berkshire, cheer for during that period?

I won’t keep you in suspense. We should wish for IBM’s stock price to languish throughout the five years.

Let’s do the math. If IBM’s stock price averages, say, $200 during the period, the company will acquire

250 million shares for its $50 billion. There would consequently be 910 million shares outstanding, and we

would own about 7% of the company. If the stock conversely sells for an average of $300 during the five-year

period, IBM will acquire only 167 million shares. That would leave about 990 million shares outstanding after

five years, of which we would own 6.5%.

If IBM were to earn, say, $20 billion in the fifth year, our share of those earnings would be a full $100

million greater under the “disappointing” scenario of a lower stock price than they would have been at the higher

price. At some later point our shares would be worth perhaps $11?2 billion more than if the “high-price”

repurchase scenario had taken place.

The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own

money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks

rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including

those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble

a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.

Charlie and I don’t expect to win many of you over to our way of thinking "

pitz's picture

Very true, but if the business itself lacks solid internal growth and such is the cause of share stagnation, that's not good either.  Buffet would, in such case, have 7% of a company that is losing value relative to the rest of the market.  And the evidence is strong that IBM has been burning the furniture for a long time, by the way they treat staff (ie: calling them 'resources', using H-1B's instead of considering qualified domestic talent, by slash/burning R&D, etc.). 

Fix-ItSilly's picture

oh my, I don't believe Buffett would have said that even 15 years ago! What investor roots for mediocrity?

2 decades ago, IBM totally lost its way. Even with Gerstner lauded, he only carved profits from IBM bureacratic structures, pensions and employee hides.  IBM continued on the same well blazed, destructive path Eastman Kodak, Bethlehem Steel and Xerox followed. Just one ponderous step after another with no strategic technical adjustment.

Mr. Buffett, as you root for mediocrity, maybe you can speed things up by finding IBM an "Autonomy" to buy.

weburke's picture

did anyone write a book on Gerstner yet?? he was, according to those that worked with him, insane.

anti-republocrat's picture

IBM would have been far better off if Gerstner had been insane.  No, he knew very well how to make money -- for himself and a select few cronies.  But sometimes he couldn't even do that.  The "recovery" he's been given credit for was due to a rebounding economy, nothing Gerstner did.  OS/2 was far better than Windows/95, but he allowed it to be delayed for perfection until Microsoft had built overwhelming momentum, then didn't insist midrange and mainframe systems support it.  IBM essentially missed the dot-com boom entirely.

In the mid-90s, IBM had a skunk-works small disk unit that was 2-3 years ahead of any competitor.  Gerstner bragged that a competitor wanted to buy it but that it wasn't for sale.  In less than a year, he attempted to consolidate this unit with a more bureaucratic unit at a different site.  Many engineers refused to go, were laid off and ended up at Seagate, Western Digital or other competitors.  So, he didn't sell the unit.  Instead, he gave away its most valuable assets (engineers) and got nothing for it.

asteroids's picture

What if the stock falls 50% back down to $100. What does your math tell you then?

ArtOfLife's picture

Then the stock would be trading at around 6.5x earnings, paying a 4.4% dividend that's growing. Compared to a market that is trading @ 18/19x earnings. 

Hard to imagine it would stay long at such a low multiple.  

sun tzu's picture

You assume the eps abd dividends won't be shrinking

Livermore Legend's picture

Indeed the Most Important Point........

davidalan1's picture

Strange phenomenon..I keep seeing "since Lehman" in alot of negative financial reports. Hmmmmm, life leaves clues?

 

Wait What's picture

you beat me to it, i was about to mention that. "...since Lehman"

add "...since 2008/9" or "in 6 years" and you've got a new shots game.

a shot of bourbon every time you read or hear one of those three phrases.

WillyGroper's picture

Let the Oral of Omaha SUCK IT!

miker's picture

Buffet is going to be proved to be the proverbial "stoppped clock".  He will have been right until this mess collapses and then he'll be like everyone else.

Ludwig Von's picture

Even a stopped clock is right twice a day... . :-)

prudent_investor's picture

IBM probably isn't the worse company in the industry given its valaution...just take a look on so called new cloud solution industry- full with stocks' bubbles- one good example is NetSuite Inc. it does not keep any plausible growth and margin assumptions- current market price is out of the blue

Read here more good read on NetSuite valuation analysis:

http://prudentvalueinvestor.blogspot.com/2014/12/sell-short-netsuite.html