IBM (NYSE:IBM) Committing Suicide Within Bullish Market

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By Chris Hillman on December 6, 2014 Company

This year, the industrial Dow Jones exchange has portrayed an increase in aggregate value by almost 7% compared to last year’s closing figure. Last year, the same index increased by almost 27%, which shows how the industry has been continuously growing and expanding in the past couple of years. However, IBM (NYSE:IBM) seems to have missed out on the memo specifying this opportunity, and has, instead, acted in a manner which is detrimental to the company itself. IBM (NYSE:IBM) shares dropped 14% this year, amidst a very favorable market.

This year, IBM (NYSE:IBM) has had an average earning figure of $3.68, well below the target mark of $4.32 the company had set for itself to boost investor response. According to the company, a significant “slowdown in September” of purchases from the company has resulted in the lower earnings figure. The company had an earnings per share figure estimated at $20 by the year 2015. However, with its current performance, it has postponed this target until further notice by the company.

This poor performance by the company is not entirely because consumers have shifted away or stopped consuming products by IBM (NYSE:IBM). It is also in part due to the fact that the company is going under a major transition in an attempt to smooth-out business. Under its new model, the company aims to reduce diversity of products, selling off segments of the business producing the least profit margin for the company, in order to focus on segments making the highest profit margins for the company. High profit margin segments include cloud computing, smarter planet, growth markets, and business analytics.

In 2011, IBM (NYSE:IBM) had declared highly ambitious goals for the future, having just achieved a $20 EPS figure. The company, in its declaration, had proclaimed focus on only the four abovementioned segments, which, according to IBM (NYSE:IBM), would lead to a growth in revenue worth $20 billion by the end of 2014.

Clearly, this has not happened as the four core areas, the company had high hopes with, are not as strong as IBM (NYSE:IBM) hoped they would become. Revenue figures have actually fallen this year by 5% in growth markets segment, and only an 8% increase has been witnessed in the business analytics segment. The company has stopped mentioning its “smarter planet” segment of business altogether, especially in its financial reports, making a comparison with previous years impossible for analysts. Cloud computing has shown significantly favorable results, growing by almost 50% from 2011 to date.

However, revenue figures have not increased by $20 billion in the 2011-2015 period, a claim IBM (NYSE:IBM) had made in 2011. In fact, revenue figures have not increased at all. In the past four years, IBM (NYSE:IBM) revenue has actually fallen by approximately $9 billion, 9%.

The fault lies in IBM (NYSE:IBM)’s buyback policy, according to analysts. The company, in an attempt to raise share price, has reduced its share numbers from a whopping 1.16 billion to 990 million in the period 2011-2014. The company has reduced shares in value by paying out approx. $30 billion, an amount which has crippled the company.