Replies to post #3614 on The Rising Influence of Rising Affluence

[DewDiligence]

It’s a good sign for the market, IMO, that a bellwether such as IBM (down 5%—#msg-68081710) is not impeding a broad-based rally today.

[DewDiligence]

Barron’s likes IBM…

http://online.barrons.com/article/SB50001424052748703927304576637291597206866.html

›Don't Be Afraid of IBM

A disconcerting earnings report has caused shares of the huge tech haven to stumble, but the stock should recover by year's end…

OCTOBER 22, 2011
By MICHAEL SHARI

IBM's stock has been "a monster this year," says Chris Whitmore, an analyst at Deutsche Bank in San Francisco, noting that the shares have surged more than 20% even as the Standard & Poor's 500 Index has lost money for investors.

But this monster is starting to look a little spooked as Halloween approaches. Investors spotted a couple of disconcerting numbers in International Business Machines' (ticker: IBM) earnings for the September quarter, which were announced Oct. 17. The stock fell for four days, ending down by 7% at the close on Oct. 20, then rose 2.5% to $181.60 on Oct. 21. Still, it could fall another $10 before it hits bottom, says Mark Moskowitz, an analyst at JPMorgan in San Francisco.

For starters, IBM's earnings report revealed that its revenue could slide next year. Revenue from total services was up 8% from the same quarter a year earlier, but a backlog of contracts that IBM's customers have actually signed grew by a mere 2%. That's a gap of six percentage points—much wider than the usual range of zero to four percentage points—and suggests volatile sales.

Another red flag: IBM has more than its usual number of contracts in the area of short-term consulting, which suggests clients are dragging their feet on rolling out new software platforms. This could mean that corporations anticipate an economic slowdown and want to avoid cost overruns, says Moskowitz. Many of IBM's clients are in the public sector, where IT spending is flat or shrinking.

"These two developments really spooked investors; even IBM is not immune," says Moskowitz.

To some extent, investors were reacting last week to the fact that IBM's quarterly profit was slightly below analysts' estimates of $3.22 a share. Yet profit still rose slightly, to $3.84 billion, or $3.19 a share, from $3.59 billion, or $2.82 a share, a year earlier. And investors weren't wrong to focus on profits. IBM is no longer a revenue-growth story. Chief Financial Officer Mark Loughridge has said the priority is now long-term profit growth, which is more about controlling costs than signing new contracts.

Since late summer, investors have responded to the brutal volatility of the stock market by piling into IBM shares as a haven in a storm. After all, more than 50% of IBM's revenues are "recurring" in the form of multiyear service contracts, for which the company still gets paid every month even if the economy is heading south. And IBM is seen as less likely to get thrown off balance by a game-changing acquisition, because its strategic vision is unclouded by the identity crises that have led tech giants like Microsoft and Oracle into megadeals.

Analysts like Moskowitz, Deutsche Bank's Whitmore and Shebly Seyrafi of FBN Securities expect investors to start buying IBM's stock again before year's end. Despite its challenges, IBM is still one of the safest bets on the stock market, they say. Not only is most of its revenue recurring, but the growth of IBM's software business has been outpacing that of the overall software market for the last three quarters. It has dramatically improved its new-product cycle and is well-positioned in software platforms that help businesses keep costs down. The company is confident enough to allocate $893 million for dividends and $3.4 billion for stock buybacks in the last quarter.

Moskowitz sees IBM trading at 13.5 times forward earnings, and reaching $205 by the end of next year. Of course, if there is a double-dip recession, no tech stock—not even IBM—will be immune.‹

[DewDiligence]

IBM Names Rometty as Next CEO

http://online.wsj.com/article/SB10001424052970204777904576653512671012304.html

›OCTOBER 26, 2011
By SPENCER E. ANTE And JOANN S. LUBLIN

International Business Machines Corp. named Virginia M. Rometty as its next CEO, turning to an executive responsible for the technology giant's sales and marketing to lead the company as the industry shifts toward mobile computing and emerging markets.

Ms. Rometty, now in her 30th year at IBM, will be the first woman to head Big Blue. She takes over as president and chief executive on Jan. 1 from Samuel J. Palmisano, age 60, who will remain the company's chairman.

Mr. Palmisano is leaving IBM's corner office with its shares near their all-time high. He has won credit for wrenching decisions, like dumping IBM's PC business in the middle of the last decade, and for using a string of acquisitions to boost the company's exposure to more profitable services and software businesses.

As IBM enters its second century, Ms. Rometty, known as "Ginni" to IBMers, will have to navigate a turbulent global economy and major shifts in the way companies use technology. In an interview, she said she doesn't plan any near-term changes to IBM's strategy, business model or financial road map, which aims to double its earnings per share between 2010 and 2015.

But Ms. Rometty also said that it is critical that IBM never stop reinventing itself, a piece of advice that she said Mr. Palmisano gave to her. "We are different today than we were a decade ago," she said. "We will continue" to adapt, she said.

Chief on her priority list is to continue to drive IBM's current growth initiatives around software that lets companies crunch huge piles of data to make better decisions and to achieve greater focus on emerging markets.

Ms. Rometty, 54, became the leading candidate to take over the top job last year, pulling away from other contenders including services boss Michael E. Daniels and software and systems chief Steven A. Mills. Like most of IBM's top executives, she is little known outside the tech industry.

Ms. Rometty made her mark leading the 2002 integration of PriceWaterhouseCoopers LLP's consulting arm, which turned IBM from a pure technology provider into seller of top strategic advice. More recently, she ran part of IBM's services business.

In July 2010, Ms. Rometty received a promotion, adding marketing and strategy to her sales responsibilities. The company's revenue, which analysts had said required stronger growth, rose 7.5% in the quarters since then.

"She is thoughtful, she is hard-driving," said Paul Horn, the former head of IBM Research, who retired from the company in 2007. "She has got a lot of the right characteristics. People trust her."

With Ms. Rometty in charge, IBM will become the second-largest public U.S. company led by a woman—behind Hewlett-Packard Co., now led by former eBay Inc. CEO Meg Whitman.

A spokeswoman for Catalyst, a nonprofit group that researches women's issues, said there never have been more than 15 female CEOs of Fortune 500 companies before—and that lineup will rise to 16 with Ms. Rometty's appointment, unless someone falls off the list.

Acquaintances praised her selection. "She is ready for this challenge" because Mr. Palmisano "has been grooming her for this job" through a variety of IBM roles, said Maggie Wilderotter, chairman and CEO of Frontier Communications Corp., a telecom company.

A former IBM customer echoed those sentiments. Steven Heyer, now lead director of Lazard Ltd., got to know Ms. Rometty when he was president and chief operating officer of Coca-Cola Co. Her team helped meet Coke's information-technology needs, he said. Under her direction, IBM staffers engaged in "collaborative problem solving, which I think the future of IT is all about,'' Mr. Heyer said in an interview from Paris.

The timing of the succession announcement came more quickly than anticipated. When IBM tapped Mr. Palmisano as its next leader, the company named him president for a short period of time before moving him up to chief executive. Ms. Rometty will become president and CEO at the same time.

Mr. Palmsiano, who wrote in a note to employees Tuesday that "ten years as CEO are plenty," had been concerned that his succession not turn into a divisive horse race, a person familiar with the matter said previously.

When Mr. Palmisano took over IBM in 2002, the company was still mostly known for its personal computers and hulking mainframe servers. Now, IBM derives most of its revenue and profit from technology services and business software—a shift competitors like H-P are still struggling with.

"Their biggest coup has been going into the software business in an aggressive way," said Promod Haque, managing partner of Norwest Venture Partners.‹

[DewDiligence]

4Q11 IBM and The Global Demographic Tailwind:

http://www.nytimes.com/2012/01/20/technology/ibm-earnings-surpass-forecasts.html

Revenue from fast-growing markets abroad including China, India and Brazil, and dozens of smaller ones, increased 16 percent. These designated growth markets now account for 22 percent of I.B.M. business, Mark Loughridge, the chief financial officer, said in conference call.

Its “smarter planet” business—which combines research, specialized skills and sophisticated technology grew by 47 percent. The initiative, which was started in 2008, has more than 2,000 projects, like creating more efficient systems for utility grids, food distribution, water conservation and health care.

See #msg-65507852, #msg-62043930, #msg-58969771, #msg-68253451, and #msg-67607838 for related stories.