Why investors should be concerned about IBM

By

Nov. 20 2020, Updated 3:07 p.m. ET

IBM’s transition

IBM (IBM) is known for its acquisitions, patents, and technology research. It has been criticized because of its lack of revenue growth for several consecutive quarters. Financial engineering techniques to boost earnings per share (or EPS) and its identified new growth areas aren’t growing quickly enough.

Like other legacy players—Microsoft (MSFT), Oracle (or ORCL) and HP (HPQ)—IBM is also in a multi-year transition. It isn’t avoidable. The transition is tough on legacy players.

The above chart shows the top five players’ market share. IBM Corp. leads the market with a 30% share. ORCL had a 15% share in 2013. The other players were Microsoft (MSFT), Software AG (or SOW), and TIBCO (TIBX).

Customer base is losing its stickiness

Warren Buffet isn’t confident about investing in the technology sector. He chose IBM because of its “sticky” customer base. However, with most of IBM’s hardware and semiconductor businesses being sold off, its stickiness definitely isn’t the same as it was before.

To read more about Warren Buffet’s investment in IBM, please read Market Realist’s series, “Why IBM has a place in Warren Buffett’s portfolio.”

IBM focuses on high growth areas

Article continues below advertisement

IBM gradually sold off its hardware operations to Lenovo (LNVGY), Hitachi, and Globalfoundries. By exiting these capital intensive operations, its growth in terms of revenue, margins, and EPS are expected to improve. IBM will renew its focus on higher-margin revenue from businesses like software, services, and high-growth areas—cloud, data and analytics, security, social media, and mobile.

To learn more about how IBM fares as an investment, please read Market Realist’s series “Must-know: Does IBM as a stock hold promise for investors?”

Expectations for fiscal year 2015

In its 3Q14 quarterly results, IBM hasn’t shared its expectations for fiscal year 2015. It should share the expectations in January 2015.

Advertisement

More From Market Realist

    • CONNECT with Market Realist
    • Link to Facebook
    • Link to Twitter
    • Link to Instagram
    • Link to Email Subscribe
    Market Realist Logo
    Do Not Sell My Personal Information

    © Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.