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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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Tue, 01/20/2015 - 17:56 | 5685584 rtalcott
rtalcott's picture

No BM like IBM....

Tue, 01/20/2015 - 18:00 | 5685599 JuliaS
JuliaS's picture

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

Tue, 01/20/2015 - 18:15 | 5685639 Romney Wordsworth
Romney Wordsworth's picture

Open the pod bay doors HAL.

 

DAISY ~ D   a  i z e    e

Tue, 01/20/2015 - 19:03 | 5685806 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

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

Tue, 01/20/2015 - 19:17 | 5685847 nope-1004
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

Tue, 01/20/2015 - 19:50 | 5685982 lotsoffun
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.

 

Tue, 01/20/2015 - 21:30 | 5686359 Not Goldman Sachs
Not Goldman Sachs's picture

I BMed....then flushed.

Wed, 01/21/2015 - 00:57 | 5687070 old naughty
old naughty's picture

Big Blue continues with the blues.

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

H.A.L.-ed !

Wed, 01/21/2015 - 22:00 | 5690789 Caleb Abell
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).

Tue, 01/20/2015 - 18:55 | 5685783 Bunga Bunga
Bunga Bunga's picture

I = Intelligence like in CIA?

Tue, 01/20/2015 - 19:31 | 5685906 RaceToTheBottom
RaceToTheBottom's picture

IBM= Indians, Badly Managed.

Tue, 01/20/2015 - 23:23 | 5686832 neidermeyer
neidermeyer's picture

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

Wed, 01/21/2015 - 01:22 | 5687117 RaceToTheBottom
RaceToTheBottom's picture

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

That was the time when Americans were employed at IBM.

Wed, 01/21/2015 - 21:56 | 5690778 Caleb Abell
Caleb Abell's picture

IBM = Idiots Become Managers

Tue, 01/20/2015 - 18:09 | 5685626 Bloppy
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

Tue, 01/20/2015 - 18:37 | 5685733 pudge94
pudge94's picture

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

Tue, 01/20/2015 - 22:01 | 5686482 post turtle saver
post turtle saver's picture

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

Tue, 01/20/2015 - 17:58 | 5685586 JohninMK
JohninMK's picture

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

Tue, 01/20/2015 - 18:21 | 5685668 Alea Iactaest
Alea Iactaest's picture

Yeah, for everyone selling IT in China

Tue, 01/20/2015 - 17:57 | 5685587 pitz
pitz's picture

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

Tue, 01/20/2015 - 19:49 | 5685974 lotsoffun
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.

 

Tue, 01/20/2015 - 17:59 | 5685590 pragmatic hobo
pragmatic hobo's picture

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

Tue, 01/20/2015 - 18:01 | 5685595 kowalli
kowalli's picture

joyflation around the corner

Tue, 01/20/2015 - 19:21 | 5685866 weburke
weburke's picture

p/e 2000 the new normal !

Tue, 01/20/2015 - 18:02 | 5685601 Bell's 2 hearted
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

Tue, 01/20/2015 - 20:06 | 5685996 Mayer Amschel R...
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.

Tue, 01/20/2015 - 18:09 | 5685602 Rainman
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 >

Tue, 01/20/2015 - 18:08 | 5685625 bluskyes
bluskyes's picture

IBM, the company that used to be...

Tue, 01/20/2015 - 18:19 | 5685655 Yen Cross
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

Tue, 01/20/2015 - 19:06 | 5685811 bluskyes
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...

Tue, 01/20/2015 - 19:14 | 5685841 Yen Cross
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!

Tue, 01/20/2015 - 20:59 | 5686220 Wait What
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.

Tue, 01/20/2015 - 18:15 | 5685646 Colonel Klink
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!

Tue, 01/20/2015 - 18:22 | 5685673 Yen Cross
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!

Tue, 01/20/2015 - 18:22 | 5685675 ArtOfLife
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 "

Tue, 01/20/2015 - 18:41 | 5685740 pitz
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.). 

Tue, 01/20/2015 - 18:44 | 5685751 Fix-ItSilly
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.

Tue, 01/20/2015 - 19:24 | 5685879 weburke
weburke's picture

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

Tue, 01/20/2015 - 23:13 | 5686772 anti-republocrat
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.

Tue, 01/20/2015 - 18:45 | 5685758 asteroids
asteroids's picture

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

Tue, 01/20/2015 - 18:55 | 5685778 ArtOfLife
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.  

Wed, 01/21/2015 - 01:17 | 5687109 sun tzu
sun tzu's picture

You assume the eps abd dividends won't be shrinking

Wed, 01/21/2015 - 13:28 | 5688526 Livermore Legend
Livermore Legend's picture

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

Tue, 01/20/2015 - 18:24 | 5685680 davidalan1
davidalan1's picture

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

 

Tue, 01/20/2015 - 21:03 | 5686244 Wait What
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.

Tue, 01/20/2015 - 18:42 | 5685743 WillyGroper
WillyGroper's picture

Let the Oral of Omaha SUCK IT!

Tue, 01/20/2015 - 18:44 | 5685753 miker
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.

Tue, 01/20/2015 - 19:11 | 5685832 Ludwig Von
Ludwig Von's picture

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

Wed, 01/21/2015 - 13:23 | 5688514 Livermore Legend
Livermore Legend's picture

Right on Both Counts......

Tue, 01/20/2015 - 18:45 | 5685759 prudent_investor
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

Tue, 01/20/2015 - 19:07 | 5685815 Bunga Bunga
Bunga Bunga's picture

Paging Carl Icahn.

Tue, 01/20/2015 - 19:22 | 5685820 Yen Cross
Yen Cross's picture

 The puny "New Zealand"  indexes are falling.

  GBP         Average Earnings ex Bonus (Nov)           1.9%     1.6%      
01:30       GBP         Average Earnings Index +Bonus (Nov)           1.7%     1.4%      
01:30       GBP         BoE MPC vote cut (Jan)           0     0      
01:30       GBP         BoE MPC vote hike (Jan)           2     2      
01:30       GBP         BoE MPC vote unchanged (Jan)           7     7      
01:30       GBP         Claimant Count Change (Dec)           -25.0K     -26.9K      
01:30       GBP         MPC Meeting Minutes                        
01:30       GBP         Unemployment Rate (Nov)           5.9%     6.0%    

 Pay Attention/ London calling this week.

 The Satelites other than Australia, are holding. China equity markets are holding. The Australian $ is massively hedged. Terms of trade? Credit ratings agencies?  The aussie is going back to 90! The RBA can't lower rates.

 BITCHEZ

Tue, 01/20/2015 - 19:30 | 5685900 Boomberg
Boomberg's picture

Haven't all y'all heard the new announcement from IBM? They just came out with a new platform for social and mobile computing, and it's..wait for it..a mainframe..LOLOL! All they got to offer is Watson, which is expensive, proprietary, and no better than Google, and a new f**king mainframe. Even their UNIX platforms they try to force back into the system 360 mainframe model from the 1960s. Noooo open source for these f**ckers. If it were up to IBM there would be no internet, no Unix, no nothing except punch cards, dumb terminals, and mainframes. Remember they had Microsoft in the bag and f**cked that up. This company should be put out of its misery and get out of the way of the rest of humanity. 

http://www-03.ibm.com/systems/z/announcement.html?S_PKG=-&S_TACT=C2070G1...

 

Tue, 01/20/2015 - 19:47 | 5685966 Ward cleaver
Ward cleaver's picture

I. B. uy M. Ore

Tue, 01/20/2015 - 19:55 | 5685994 q99x2
q99x2's picture

IBM and CISCO work for CIA. World no like bugs. Open Source only safe solution.

Tue, 01/20/2015 - 19:58 | 5686004 Raging Debate
Raging Debate's picture

Oh no! Fortune 500 companies are going to have to do that awful thing called INNOVATE again now that financialization period of the last 15 years is over. Being an MBA in finance alone isn't going to cut it.

The horror of having to spend a few pennies on market research instead of just campaign contributions for government contracts thinga-ma-jig.

Tue, 01/20/2015 - 20:04 | 5686026 orangegeek
orangegeek's picture

I  'll    B   e in a    M  eeting

Tue, 01/20/2015 - 20:47 | 5686174 Own your own life
Own your own life's picture

I guess no one will get fired for selling IBM, either.

Tue, 01/20/2015 - 21:01 | 5686235 Zorrohodge
Zorrohodge's picture

Hmmm

google search:

site:zerohedge.com "most since lehman" 

yep thats what I thought

Tue, 01/20/2015 - 22:07 | 5686496 post turtle saver
post turtle saver's picture

lol okay that was funny, well played

Wed, 01/21/2015 - 00:16 | 5686990 ed31337
ed31337's picture

Just what in the world does IBM even produce these days? Patents? Software for governments? 

Wed, 01/21/2015 - 06:03 | 5687313 SmedleyButlersGhost
SmedleyButlersGhost's picture

Let it be remembered that what really put IBM on the map was providing the technology for the Nazis, Russians and other assorted dictatorships of the 30s and 40s to compile all of the census data on their citizens (read serfs).  That info was used to ID who to round up when the hammer dropped. Kind of an embryonic NSA.  Watson Sr was a prick   Let IBM sink into the mire and good riddance. 

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