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IBM Reports Terrible Q3 Earnings: Worst Revenue Since 2002; Slashes Guidance
Moments ago IBM reported what can be defined simply as abysmal results.
Starting at the bottom, non-GAAP EPS of $3.34 beat expectations of $3.30 but once again thanks to the same trick the company used two quarters ago: it again reduced its effective tax rate from continuing operations down to 18.2%, 2.6% lower than a year ago. Without this reduction, and the $1.5 billion in stock buybacks, non-GAAP EPS would have missed. In fact, a simple math exercise shows that if instead of the pro-forma 18.0% tax rate, IBM had used the 20.6% from a year ago, its non-GAAP EPS would be $3.23, missing consensus.
As for the GAAP bottom line, IBM's income from cont ops of $3 billion was 14.3% lower than a year ago.
Oddly while the company was quick to blame the soaring USD for its earnings debacle, a dollar whose direction even the most inexperienced CFO could and should have hedged months ago, there is little discussion of why IBM is engaging in such petty gimmickry.
And speaking of everyone blaming FX on their woeful results, just think of how much higher the net income of the S&P would be if US CFOs repurchased one less share and instead splurged the $170 to buy "Hedging Currency Exposures: Currency Risk Management" - a book which apparently nobody in senior management has ever read.
Yet nowhere was the collapse in IBM's business more evident than in the top-line, where IBM's revenues of $19.3 billion, which missed expectations by a whopping $300 million, were down a massive 13.9% from a year ago, worse than the 13.3% plunge recorded in the Lehman quarter...
... and the lowest quarterly revenue since Q1 of 2002.
Operationally, things are only going to get worse, because not only did IBM report ugly Q3 earnings, but it also slashed guidance as follows:
IBM expects full-year 2015 GAAP diluted earnings per share of $13.25 to $14.25, and operating (non-GAAP) diluted earnings per share of $14.75 to $15.75. IBM expects free cash flow to be relatively flat year-to-year. The 2015 operating (non-GAAP) earnings expectation excludes $1.50 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges.
This is down from $15.75-$16.00 previously and a cut in the cash flow which a quarter ago was expected to see a "modest increase."
As a reminder, this is not some penny stock with 1-2 contracts, and with wildly fluctuating results because the analysts just can't get any visibility into its operations: this is Bie Blue, a company which Warren Buffett personally said many years ago is set to rise, after buying even more IBM stock as recently as 2 months ago.
It isn't, and here is the reason.
While in the past IBM had been on a stock buyback spree which peaked in early 2014 and which was the sole reason behind the stock price higher as can be seen in the chart below...
... in the past year IBM has had no choice but to temper its repurcahses and even bite into its capex, thus sacrificing growth.
And the reason why IBM simply will be unable to expand its buybacks in the coming years is simple: its balance sheet is already at the point of a downgrade to junk. A few more billion in net debt additions, and IBM can kiss its Investment Grade rating.
End result: stock tumbles once again, and in the after hours session has plunged to just above its 52 week low.
The Bank of Japan will have to aggressively buy USDJPY in the afterhours to compensate for what is merely the latest example of a third quarter earnings season that is turning out far worse than even the most hardened pessimists had expected.
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I don’t think IBM will survive the next Lehman-like event.
If it were a bank, it sure would’ve gotten bailed out.
I hope they remember how to make typewriters or hand-cranked calculators, otherwise they are gone! ;-)
Looney
Poor IBM, with revenue of only $19,300,000,000 and a mere profit of $3,300,000,000. If the USA ever gets into that miserable condition, we are doomed.
What the fuck does IBM do to make that much?
Let me guess, it's a contractor for a certain 3 letter agency...
The NFL?
What a bullshit article.
I just watched the CEO on CNBS and he did not say it was a revenue problem:
It was a "Transaction Impairment."
Everyone knows that when you are impaired doing transactions that it is due to a lack of quality cocaine and hookers to get Chinese businesses to buy your antiquated crap and 1990's shit software. Sheesh.
Yeah. I'd definitely check my shorts if I was told there was a 'transaction impairment'.
Is Warren Buffet still buying IBM? Is the FED paying him to do so? He's only lost a couple hundred million so far.
Dell will buy IBM for 10 cents on the dollar just for the name, and use the marque name to sell a series of laptop computers.
They will be called "Thunkpad".
Nobody has more patents than IBM.
Another example why IP laws need reset.
"Moments ago IBM reported what can be defined simply as absolutely abysmal results."
Absolutely Bullish!
I FUCKING love it!
Bodes well for the market as a whole, should go up tomorrow. After a very brief pause we are back into full on "bad is good" again.
Zactly. Expect mass layoffs, then stock buybacks and voila, best performing stocks on the board!
Hear that sounds...that is the black hole of Zero Rates....sucking everthing inward!!!
Reekovery Year 8 ready to roll!
We must be near "Liftoff" eh?
Mr. Yellen? Are we at full employment yet?
suckit buffitt
they can make it up buying stock back...right?
Bullish, Yellen needs to print moar for stock buybacks.
But, but, but, China's GDP was good. The FED wants to raise rates by the end of the year. This must all be transitory.
I was wondering why they were willing to give source code to China
http://www.wsj.com/articles/ibm-allows-chinese-government-to-review-sour...
Source code for what, I wonder. CICS? Just remembering CICS makes me feel old...really old.
You may want to do a little research on Lenovo's investment in IBM, and who founded/owns Lenovo. . .
No problem - shitcan a few thousand workers before tomorrow, announce in pre-market, market soars, Bob's your Uncle.
Does that mean we've reached full employment?
dont worry' the ''markets'' will still be in the green tomorrow as we will be told ibm does not matter, but faceshit and nflx mean a lot to this ''market''
Buy, Buy, Buy!
Nope. Art Cashin told me that earnings have been ok
NSA backlash in there too
WalMart, McDonalds, now IBM....
When do we get the Doom Ball rolling again?
How many other things can happen between now and the 10/27, 10/28/15 FOMC meeting to cause a surprise liftoff delay shortly after comments have been planted that a raise will be coming? This focus on fundamentals is inappropriate and must be redirected to pure focus on the FED's interest rates situation. That is all that matters.
Bye, bye Miss American Pie...
....the media will get negative and roll the Doom ball only AFTER the spx has given up another 7% to the downside...then they will say 'oh,my!'
How is CAT doing?
All IBM has to do is get Okra Whimpy to weigh in and buy some of their stock, it will take a moon shot then!
brilliant! Borrow the money from the fed to give to Oprah to buy their stock. I think it will work.
I think the big money got the word. Time to anti-up; you have more to lose than the eaters. I think it's desperation. From a macro perspective, how can this be a smart move? Is there an overabundance of disposable income among the masses? I can't see the upside. Global financial collapses are good for weight-loss. And cheap.
Fundamentals mean nothing.
All that matters is price control ... and being favored with price support for being a spy for the government and its controllers.
It's the new "paper is productivity" economy. Awesome.
Who needs investment grade ratings and revenue? Accounting fraud will increase earnings per share, and buybacks will keep the price up. They can sell off more assets to fund buybacks. If that fails, the fed will bail them out -we can't let Big Blue go under.
An interesting thing I discovered at the 2015 Intel conference. It seems like the Moore's law is not simply going to slow down in the next 4 years, but it'll practically hit a brick wall. IBM's experimental limit for transistor size is 7nm with theoretical being not far behind at 5nm. Beyond that, it is believed, the current silicone lithography methods become non-feasible, and there is no replacement method currently available or even being contemplated (aside from using rare and toxic materials instead of silicone).
Intel is already making 14nm CPU's and are about a year ahead of competitors, which seems like no big deal unless you consider that according to Intel's own roadmap it was supposed to be selling 10nm chips this year. Their own factories are 2 years behind schedule in terms of adoption of newest manufacturing methods due to poor yields. Similar struggles are shared by all chip producers - IBM, AMD, Samsung etc. They can't make transistors small enough with low enough rate of failure to maintain profit margins. The smaller they go, the more chips they waste. Nvidia is at 22nm and has a bit of reserve potential, but after intel hits the magic 7nm that's it. Every other competitor will catch up and no one will be able to dominate the market though technological superiority. Business customers will have no incentive to upgrade with manufacturing advancing at a snail's pace and when it comes to brand preference - there'll be hardly any difference between any of them. Aside from selling patents to eachother, how will anyone be making money?
Selling more data centres to NSA?
Nope, kids video games.
I guess they will have to concentrate more on the architecture and less on the physical elements such as transistors. AMD leapfrogged Intel by being first with consumer-level 64-bit and dual core CPUs. It took Intel several years to regain the advantage architecturally, while AMD fumbled on a few newer designs. Intel followed AMD into the combined CPU-GPU market and integrating memory controllers onto the die. AMD is reported to have a promising new architecture due next year, although Intel will probably still have the advantage in transistor size and hence power consumption. For 99% of us the physical limitations being approached will have little or no effect. If it wasn't for all the animated ads on web sites we wouldn't need half the power available in the Core i7.
"... instead of silicone" ... ummm, it's "silicon". Silicone gets put in tits.
And IBM isn't a chip producer anymore ... that's another business the either have given up or are preparing to give up - I've lost track.
If you can't run it, buy it.
And what happened to me in Q2 of 2002? My own personal economic depression began. It didn't really hit me square in the face until '04. That was the year of my foreclosure, even though I had a job. It was not enough to save my home. I had suffered two major repossessions previously in '03, and the same year of the foreclosure. I was an IBM employee (contract) from '92 through '97. And now I am living with my elderly parents.
My last job, laid off in March of this year. Only PT. Paid my car insurance, rent, and food. Not much else. I would only be happy to still have that job. It only paid me $15 / hr. And no more than 10 hrs. per week. For same kind of work I had done 10+ years prior for up to $30 / hr. and all the overtime I wanted (if I wanted/needed it).
Yeah, that giant sucking sound. Someone has yet to figure out how to turn off that vacuum cleaner. With labels NAFTA, GATT, et al emblazoned on it.
So what next these remarkable earnings will bring? More prosperity? Dow 20,000?!?
An alternative to this madness ..
https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp (Read Me First)
IBM is the king value trap of all value traps.
Buffet is getting old and looney
-chomu
IBM used to be a truly great company until they handed management over to the financial spreadsheet jockeys.
IBM = It's Been Marvelous......
Indian Badly Managed...
Here are some signs of a coming recession.
1. Business loans for M&A not CAPEX.
http://www.zerohedge.com/news/2015-10-15/there-goes-final-pillar-us-recovery-loan-growth-paradox-explained
2. Factory orders continue to drop
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
3. Default risk spikes
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
4. M&A set record
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
5. Fed sees 2 bubbles
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
No problem Hockey stick recovery 2016.
I can't believe it's only down 4.9% so far. What has everyone been expecting with N$A backdooring their hardware.
IBM just needs to hire accountants who know how to make the top and bottom line sing.
The Bank of Japan will have to aggressively buy USDJPY in the afterhours to compensate for what is merely the latest example of a third quarter earnings season that is turning out far worse than even the most hardened pessimists had expected...............
While the SnP is within spitting distance of its all time high.......
makes perfect sense.
I can't believe IBM at all, I assume 80% of the stock price is Fed manipulation.
Big Blue bruised down 7-plus points AH today, minus 5%, to 142, is soon headed to 130 and then 120, for a short bounce, and then on down to the fatal sub-100 handle, and when you need a 10 year chart to see the big-picture top-cum-collapse, and any possible knife-catching support level venues below, you realize that the view across the valley of depression has come nowhere near to being in focus:
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ibm&insttype=Stock&freq=1&show=
I guess they did not put enough fertilizer on the "green shoots" to affect their bottom line...
Inadequate But Marketable. In the latter part of the 80s, they were selling off leases for cash in order to make their numbers look better, at the expense of losing income from those leases in the future. That eventually caught up with IBM and (the late) John Akers though. You can't just continue to buy back stock in order to jimmy the EPS or to artificially raise the price of the stock so that option-heavy executives can cash out at a higher price.