Here are some snippets from IBM's press release on today's earnings that you may not see or hear in the mainstream press:
SG&A expense decreased 19 percent to $5.1 billion.
Comment: IBM was supposedly well run a year earlier. How could SG&A drop a massive 19% in one year? What harm to the company's longer term prospects come from such a drop? If no harm accrues, why was IBM wasting about $3 1/2 billion dollars a year?
RD&E expense of $1.4 billion decreased 14 percent compared with the year-ago period.
Comment: Presumably this stands for Research, Development & Engineering. Drops in RD&E mean low quality earnings and are a red flag that the corporation is overtly managing its earnings to please investors.
Revenues for the six-month period totaled $45.0 billion, a decrease of 12 percent (5 percent, adjusting for currency) compared with $51.3 billion for the six months of 2008.
Comment: Despite being in a growth field, IBM's revenues basically track that of the economy.
OEM revenues were $537 million, down 24 percent compared with the 2008 second quarter. . . Revenues from the Systems and Technology segment totaled $3.9 billion for the quarter, down 26 percent (22 percent, adjusting for currency). Systems revenues decreased 26 percent (22 percent, adjusting for currency). Comment: IBM's days as a hardware manufacturer are ending. And Hewlett-Packard is going to try to do to IBM in global services what it did to Dell in PC's.
The company returned $2.4 billion to shareholders through $732 million in dividends and $1.7 billion of share repurchases.
Comment: Free cash flow is good. But IBM stock has gone nowhere for 10 years. The stock now sells for almost 40 times dividends. Why not stop "investing" in its own stock and return all returnable cash to shareholders as dividends? An optional dividend reinvestment plan would let shareholders who want to passively buy more stock quarterly would be no problem.
IBM has a negative tangible book value of over $5 Billion.
Comment: Accounting rules mandate that purchasing your own stock over book value means that you incur a charge against book value. So the decline in tangible book value from IBM's practice of shrinking its shares outstanding is not a disaster, but it does represent a leveraged bet on its future performance. The cash is neither in shareholders' pockets, nor is it in IBM's pocket as reserves against the proverbial rainy day.
Disclosure: The author is long IBM stock but may sell it or become effectively short the stock at any time without notice.
Copyright (C) Long Lake LLC 2009
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