Buffett Sells A Third Of His IBM Stake: “I Don’t Value IBM The Same Way That I Did Six Years Ago"

Tyler Durden's picture

When Warren Buffett surprised markets in 2011 after announcing that he had started building up a stake in IBM - a member of the tech sector from which Buffett had traditionally kept a safe distance - we joked that the only reason for his involvement was IBM's then unprecedented buyback spree. A few short years later, IBM's buybacks ended with a whimper when its debt level hit record highs (the company's credit rating was recently downgraded) even as its revenues continued to post a record slide and were back to levels seen at the start of the Millennium, while EPS only beat thanks to ever lower effective tax rates. 

Which is why we were not surprised to learn overnight that Buffett's Berkshire had dumped a third of its stake in IBM in the first explicit sign of declining confidence by the famed investor.

Speaking with CNBC, Buffett said he had sold the substantial holding, worth more than $4bn at the current share price, after "revising his view of the company’s competitive prospects."

“I don’t value IBM the same way that I did six years ago when I started buying . . . I’ve revalued it somewhat downward,” he said. “IBM is a big strong company, but they’ve got big strong competitors too.”

"I think if you look back at what they were projecting and how they thought the business would develop I would say what they’ve run into is some pretty tough competitors,” Mr Buffett added,

Buffett bought in at an average price of about $170 per share, and when the shares briefly traded above $180 earlier this year “we actually sold a reasonable amount of stock”, he said to CNBC.

Back in 2011, when Berkshire first announced a stake in IBM, it was seen as a vote of confidence in the company’s ability to ride out the sort of disruptive changes in tech markets that had led Mr Buffett to avoid taking big positions in the industry in the past. However, as documented here each and every quarter since, IBM’s fortunes turned two years later as the rise of cloud computing ate into demand for its IT equipment and services, which are heavily geared towards companies that install and run their own IT facilities. IBM was eventually forced to abandon the ambitious five-year financial targets that it had used to "demonstrate its resilience" in the face of tech change.

And yet, despite quarter after quarter of declining revenue and profit, Buffett continued to add to his stake, buying more shares in late 2015 when the price was higher than today. He eventually amassed a position of 81 million shares, or 8.5% of the stock according to FT. According to Berkshire’s most recent annual report, the value of its IBM stake stood at $13.5 billion at the end of last year.

It was the only one of the company’s 15 largest investments where Buffett was sitting on a loss. Some more from the FT:

Although Mr Buffett did not identify the rivals who had made him rethink his investment in IBM, the company has struggled to match the new wave of cloud competitors, led by Amazon, and including Microsoft and Google.

 

Ginni Rometty, who became IBM’s chief executive less than two months after Mr Buffett first became a shareholder, has made cloud computing one of the company’s top priorities, along with artificial intelligence and data analytics.

 

But growth in these new businesses has not been enough to outweigh the continuing shrinkage of IBM’s core business, leading earlier this year to the 20th successive quarter of annual revenue declines. The shrinkage has also reflected the disposals of some lower-margin operations as IBM has tried to reposition its business in more promising markets.

While Buffett had avoided passing judgment on IBM until now, market enthusiasm for IBM has been cooling for some time. At Berkshire’s annual meeting last year, he gave a notably underwhelming defence of the investment when challenged by a shareholder about IBM’s prospects. He said then that the company had “certain strengths and certain weaknesses”.

IBM stock was down over 3% in the premarket on news of Buffett's partial capitulation.

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silverer's picture

Wow, Warren. Heavy.

AlaricBalth's picture

Sold a third of his position? Wow. That's some conviction you got there Warren.

NoDebt's picture

"I don’t value IBM the same way that I did six years ago when I started buying"

Yes you do, Warren.  Because it's at the same price it was six years ago.

 

govtsucks's picture

Wow, he made a 6% return in six years. What a fucking genius.

Teja's picture

To people who had to work regularly with IBM over the years, it was pretty obvious that the company is a zombie for quite some time. Much earlier than WB's share purchase. IBM is buying software companies and similar, then squeezing their customers out while slowly killing the product. Not many good products of their own being developed any more. Employees demotivated, management just pushing the newest propaganda waves to their people. And most company parts where one has to work with "real" customers (small business, hardened ITlers, end customers, not impressionable deluded CxO people) have been sold or killed over the years, PC, harddisks, Intel servers, OS2 operating system, Lotus business software.

It is sad to see such an industrial giant go down slowly, decomposing over the years.

French Bloke's picture

IBM gave many UK contractors 1 weeks notice on Friday 05/05. Coincidence? Planning for more cheap, inefficient, offshore resources to do the job. It is widely recognised in the UK/USA workplace that these guys are nowhere near as good, and that's from the coalface. Whilst management slap each other on the back when a new dept opens in Bangalore whilst draining their own life blood in the form of their most valued resources back home. This downward spiral is not about to stop anytime soon and there will be more folks thinking of doing a Buffet, and getting out.

 

For Ginni's sake, print Janet, print!!

Mother Of All Bomb's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

mrbyrite's picture

and then slags off the company.

Maybe he's planning on buying more

Silver Bug's picture

Buffet knows that a major crash is on route and is getting his money out, while the getting out is good. This guy has made billions off being a corrupt insider.

 

http://www.goldsilverliberty.com/2017/05/economic-reality-bottom-50-of-a...

squid's picture

It needs to be said.....

Wonderful avatar.

 

Squid

south40_dreams's picture

Microsoft and Google need to be broken up under antitrust

apadictionary's picture

aint happening. because they are part of a big club. you and i are aint in it

Mr Pink's picture

In 10-15 yrs a handful of tech companies will control everything. More specifically, the ones that are now working on A.I. 

By 2030, 75% of S+P 500 companies will no longer exist

Great Deceivah's picture

Nonsense, IBM is actually the company with the most powerful AI out there.. they have been working on it for years (Deep Blue, Watson)

IBM has the first greatest milestone for AI so far.. defeating Kasparov, businesses can even "rent" Watson AI right now..

but.... Google quickly caught up to IBM, when they purchased a UK company that specialized in AI.. otherwise they were really far behind.

Despite the strong AI, IBM sucks now, because the company is run by greedy globalist morons, like most American companies, so no amount of AI will be able to save crappy companies.

Uiltimately, AI will become a commodity, and be rented, brought and sold.. there is nothing magical about it..  AI engineers will be like the programmers of today.. 

Teja's picture

The idea might have been that AI systems would replace IBM managers. But even the best AI would get stuck in their management processes and infighting, probably committing suicide by division by zero error.

Siriustwo's picture

IBM was also demoing voice recognition in the mid 80's.  I remember the write to Mrs Wright, right away demo.  Invention is the process of turning cash into research, innovation is the process of turning research into cash.

barysenter's picture

Yes, so Sony can corner the monkeys.

Obadiah's picture

OH Snap this biatch is going down big today

Bill of Rights's picture

Should be good for a bounce on this news...

Dogman57's picture

What a fuckin' liar. We are suppose to believe he sold this POS, IBM, without a loss?  

gregga777's picture

The incredibly incompetent and corrupt American business graduates running the IBM CONporation were trained to self-enrich themselves while running their CONporate employer into the ground. They've become ever richer all the while IBM sheds American workers, loses market share, decreases revenues and profits, all the while LYING about their true goals for self-enrichment. IBM is another American business school success story!!!!

ThanksIwillHaveAnother's picture

Don't forget to mention Yahoo!   

RedKlaxon's picture

-US Chamber of Congress strongly advises "IT organizations heavily facilitated by off-shore outsourcing(india inc) are failing to develop themselves, are no longer innovating, and are severely increasing their technical debt."

They have become money pits.

HP, Sears, Intel, Motorola, Citi
Research the total cost $B's Citi shelled out untangling India contracts after firing their India CEO.

J bones's picture

Im warren out!

ThanksIwillHaveAnother's picture

Buffett is the grand insider who can do anything.   IBM needed his blessing to continue its financial engineering.   Who will step in next?  Gov bailout???

vesna's picture

Insider information?

ThanksIwillHaveAnother's picture

Via GeRe or whatever the re-insurer is calle today after its CEO and CFO went to prison but Buffett walked away clean.

EhKnowKneeMass's picture

You read my mind. What he actually said, to those who can read between the lines, is this:

"[I have insider information, which makes me not] value IBM the same way that I did six years ago when I started buying. I’ve revalued it somewhat downward. [It is going to be a dog going forward.]”

This comes from a guy who, I believe said, I don't like tech because I don't buy anything that I can't understand. I'm paraphrasing, of course.

spastic_colon's picture

and yet futures are unchanged...........IBM is the 3rd highest weighted dow stock.

A. Boaty's picture

Did Watson predict this?

highwaytoserfdom's picture

Says a lot on Google PageRank search to NSA data Bases.. Think there are to many people to let the tattoos Auschwitz or trains run on time in Germany or financing both sides of war to stop this nonsense.

 

Why care that Chaney sold reactors to North Korea or that both sides of war financed by globalist http://www.zerohedge.com/news/2016-07-31/500-years-stock-panics-bubbles-...

The real mystry to me is how  Howard Buffet spawned such a man.  When you lie with the devil (Solomon bond )  then you are the Mr Wolf of the AlanBenFelon thin air bunch...

CFR, trilateral, club of Rome, is criminal cabal of war profiteering regime change evil... 

 

highwaytoserfdom's picture

I want to be the next Buffet going to have a re insurance of reinsurance of derivative reinsurance. 

 

All backed by assets of 666 building or the Conseco (Hebert Ivanka) GM/Trump building..    Can we get the 50b back from that country that should be made a state to limit their Senators to 2 instead of 62?

Drink up the diet coke aspartame  so you can't remember crap..      Thank goodness Joaquín "El Chapo" Guzmán  and the Ollie Contreras and the Al_CIA_DUH  bailed banks for the rulers  and arms makers, and refuge   and slave labor crowd..

 

FreeDumb FreeDumb FreeDumb

"Sweet Caroline" "Sweet Caroline" "Sweet Caroline"

pankowboy's picture

Carly Fiorina, Ursala Burns, Meggy Whitman, Ginny Rometty, Marissa Meyer, Carol Bartz,...

highwaytoserfdom's picture

Carol ok    AutoCad    but the rest did more to hurt women than could be put into words.

 

 

cherry picker's picture

You forgot to include the three flations, in, re and de.

 

 

TheFederalistPapers's picture

Just another cock sucker.

BendGuyhere's picture

But, but, but, VAGINA!

Another iconic american corporation run into the dirt by another incompetent american woman.

Billions wasted on share buybacks

Rampant H1B visa abuse

Fuck 'em

overmedicatedundersexed's picture

munger and buffet..reptile shape shifters..drinking young kids blood to stay alive..

just die muthafucker just die.

Siriustwo's picture

I shorted this pig in July and Sept.   Just barely making money.  Shorted MSFT and ORCL more recently.  These legacy companies are converting legacy revenue to the cloud using gates and accelerators for their sales reps.  IBM told their sales team miss two quarters and start looking for a new job.  You can fool most of the people, all of the time.

BitchesBetterRecognize's picture
“I Don’t Value IBM The Same Way That I Did Six Years Ago"

 

that's a code name for "getting the fuck out of the stock market"  

barysenter's picture

Yes boys, I need all my cash to buy the crash!

Lost in translation's picture

I bailed out too early. Back in December, 2015.

Coulda' made more money, woulda' paid less (2016) taxes... oh well...