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IBM Shares Plummet On Q3 Results

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The share price of IBM (NYSE:IBM) plummeted upon release of its third quarter results this morning. IBM closed at 182.05 on Friday, October 17th. The value of the company’s shares dropped in early trading to open today at 166.93. The share price has held fairly steady during the day with about an hour remaining. It currently stands at 168.58, down 7.40% for the day.

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If you were to drive through the industrial sections of Binghamton, Johnson City, and Endicott, the Triple Cities of upstate New York, back in the late 1950s and early 1960s, you would have thought that IBM was the biggest company in what was known as The Valley of Opportunity. It was. IBM was everywhere. I know. I grew up there. I thought that everyone except my dad worked for IBM.

If you were to drive those same streets today, you would still see those old IBM buildings, but most of them are now empty shells of what once was. I wonder if they are a picture of what IBM has become… or is becoming.

The company has had to almost completely transform itself several times over the years, evolving from mechanical to electric typewriters and from mainframe computers to PCs and WYSIWYG software and beyond. More than once, the captains of the IBM ship must have felt like Captain Edward John Smith on the Titanic, wondering what just hit the ship.

Here’s the essence of the report:

  • Total revenues were down in every business sector for the quarter and in all but two for the year to date, and those two had only marginal increases
  • Actual total revenue for the quarter was $22.4 billion, down 4.0% year on year from $23.3 billion
  • Year-to-date revenue was down 3.2% from $70.9 billion to $68.7 billion
  • Income from continuing operations declined by 16.5% from $4.1 billion to $3.5 billion
  • Net income dropped by an embarrassing 99.6% from $4.0 billion  to $18 million, contributing to a YTD net income of $6.5 billion, down 36.5% from $10.3 billion in 2013

IBM CEO Virginia Rometty reported that “We are disappointed in our performance.” I assume that she was speaking for the board. The decline in IBM’s share price today indicates that investors agreed.

She added that “We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry.” Or, to put it another way, “We’re just too darn slow.” Which is exactly why she related that “We are executing on a clear strategy that is moving IBM to higher value,” which might have sounded like a bunch of bunk, had she not also indicated that “We will accelerate this transformation.”

How to dispose of manufacturing plants

IBM also announced that it is selling its fabricating plants and related intellectual property to Globalfoundries, a former manufacturing division of ARM Holdings (LSE:ARM), which no longer does any fabrication. Actually, I need to restate that. IBM will be paying Globalfoundries $1.5 billion over the next three years to take the losing units off its hands. In addition, the companies have worked out a ten-year supply agreement that allows IBM to move – hopefully a bit more speedily – along with its latest transformation process.

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