The Dow Takes a Breather as IBM Takes a Dive
The Dow Jones Industrial Average and broader S&P 500 Index were respectively down by 0.36% and 0.2% as of 1 p.m. EDT, after hitting record highs yesterday.
Today is the annual investor meeting for Dow component IBM. Company executives are in New York to talk strategy, risks, opportunities, and results.
IBM has been a beleaguered stock over the past few years, as Big Blue once again attempts to transform itself. The company has sold off low-margin businesses that generated over $6 billion in annual revenue, investing the proceeds into higher-margin software and service ventures.
The result is a company with improved profitability but with serious questions about revenue growth. Investors, as of yet, are not convinced that IBM will successfully complete this transformation. After a public relations blitz this past weekend, today is management's opportunity to take on these questions directly.
Here is a rundown of what's happening at the investor meeting so far.
- CEO Ginni Rometty told investors that the entire industry is "reordering," and that the tech sector landscape will look completely different in 10 years.
- Rometty said she sees IBM as being the leader in enterprise information technology now and in a decade.
- CFO Martin Schroeter said IBM sees profits in its hardware business running flat this year, largely due to headwinds in China.
- Rometty reiterated that she sees IBM leading the industry, driven by high-end and high-performance data systems and storage.
- The company confirmed expectations for "at least" $20 per share in fiscal 2015 earnings.
- Schroeter emphasized that IBM's shift to higher-margin, higher-value businesses will likely add $3.25 to earnings per share this year. The company's share buyback program should add $2, while expiring tax credits will detract $1.50.
So far, the market has reacted negatively to the statements, sending IBM down 1.7% in early afternoon trading. The likely reason? The presentation has been light on specific reasons for optimism, and heavy on things we already know.
The market knows IBM is divesting its low-margin businesses. The market knows the server business is cyclical and that doing business in China is tough. The market knows that IBM's plan is to be the leader in data services and high-performance hardware systems.
The big picture strategy makes perfect sense in speeches and press releases. We've all read the SEC filings, listened to the interviews, and understand the plan.
What investors want to see now is tangible results. How are IBM's customer's responding to the new cloud technology products? Will Watson, IBM's famous supercomputer, ever achieve enough scale to move the revenue needle in a meaningful way? When will the company start to grow again?
The executives presenting today have their finger on the pulse of the company. Investors want to feel a strong, healthy heartbeat when Rometty speaks. And as of yet, that hasn't happened.
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The article The Dow Takes a Breather as IBM Takes a Dive originally appeared on Fool.com.Jay Jenkins has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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