Why IBM Stock Is Stalled despite Increased Interest in the Tech Space
IBM divests units from Hardware segment
So far in this series, we have reviewed IBM’s (IBM) initiatives to report top-line growth by investing in disruptive technologies like blockchain, which could boost its Strategic Imperatives segment.
In the last couple of years, IBM has been systematically divesting units from its hardware operations. The tech giant has refocused on rapidly growing technologies like cognitive computing, the cloud, AI (artificial intelligence), security, and mobile software.
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In 2014, IBM sold its x86 server division to Lenovo (LNVGY) for $2.1 billion. IBM was previously considered a market leader in x86-based servers.
In late 2014, IBM announced the transfer of its semiconductor manufacturing operations to GlobalFoundries. Although IBM has stated this transaction as a sale, IBM agreed to pay GlobalFoundries $1.5 billion over the next three years to discontinue its semiconductor operations.
IBM’s changed focus and soft growth weighed on its stock
IBM’s changed focus and strategy caused its top line to fall 24% in the last five years, and its adjusted EPS (earnings per share) fell 10%. Its FCF (free cash flow) also suffered and fell 22% during that time. All these factors weighed on IBM stock, which has fallen ~31% in the last five years.
IBM stock, which started 2017 at $167 levels, is currently trading close to $147. If we consider its one-year and five-year performance, IBM stock has fallen ~6.0% and ~30.4%, respectively.