Author Topic: IBM - International Business Machines  (Read 436232 times)

ItsAValueTrap

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IBM - International Business Machines
« on: October 12, 2012, 01:57:03 AM »
Ok I am not an IT guy and I don't know why Warren Buffett bought such a huge stake in it.  Berkshires 13-F filing shows $13B in IBM versus a total portfolio of $74B (~18%).  Compared to Berkshire's market cap of around $220B it doesn't look like that concentrated of a position though.

Buffett talks IBM in this interview transcript:
http://www.cnbc.com/id/45290263/CNBC_Transcript_Warren_Buffett_Explains_Why_He_Bought_10_7B_of_IBM_Stock_Part_5

From what I understand:
-Warren sees IBM's reputation as a bit of a moat.  This might be comparable to how Goldman Sach's reputation helps it win business and how large ad agencies have reputations that help them win business.
-In the IT business, CIOs want to go with vendors who will deliver and stand by their product.  So the established players have a minor moat against new entrants.
-IBM's previous managements have been really really good.  They are good both on the operational side and on the financial side (e.g. share buybacks).
-It looks like a cheap growth stock.

Stuff that may not matter (and points that Warren didn't raise):
-IBM's long history and its reputation allows it to raise debt cheaply.  It has sold a 100-year bond.
-I guess Warren doesn't talk about this, but their mainframe and CPU business will probably eventually die off in the face of Intel.  Just my opinion though.
-IBM is transitioning into a software business.  I have no clue what their software does however.
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benchmark

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Re: IBM - International Business Machines
« Reply #1 on: October 12, 2012, 10:30:32 PM »
Ok I am not an IT guy and I don't know why Warren Buffett bought such a huge stake in it.  Berkshires 13-F filing shows $13B in IBM versus a total portfolio of $74B (~18%).  Compared to Berkshire's market cap of around $220B it doesn't look like that concentrated of a position though.

Buffett talks IBM in this interview transcript:
http://www.cnbc.com/id/45290263/CNBC_Transcript_Warren_Buffett_Explains_Why_He_Bought_10_7B_of_IBM_Stock_Part_5

From what I understand:
-Warren sees IBM's reputation as a bit of a moat.  This might be comparable to how Goldman Sach's reputation helps it win business and how large ad agencies have reputations that help them win business.
-In the IT business, CIOs want to go with vendors who will deliver and stand by their product.  So the established players have a minor moat against new entrants.
-IBM's previous managements have been really really good.  They are good both on the operational side and on the financial side (e.g. share buybacks).
-It looks like a cheap growth stock.

Stuff that may not matter (and points that Warren didn't raise):
-IBM's long history and its reputation allows it to raise debt cheaply.  It has sold a 100-year bond.
-I guess Warren doesn't talk about this, but their mainframe and CPU business will probably eventually die off in the face of Intel.  Just my opinion though.
-IBM is transitioning into a software business.  I have no clue what their software does however.

I used to work for IBM, and I don't approve Warren's buy :)

Seriously, the growth that IBM has shown are mostly via cutbacks (on employee benefits, outsourcing, etc) and buybacks. The top line hasn't grown that much at all, employee morale isn't very high. The one thing that they are doing right is focusing on software and buying smaller companies and use IBM's brand/sales/marketing to make more out of acquisitions. But I still don't think that they can sustain that strategy for long.

ItsAValueTrap

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Re: IBM - International Business Machines
« Reply #2 on: October 12, 2012, 11:45:48 PM »
Yeah businessinsider.com has been running some pretty brutal articles on how IBM is working its employees.  While BI may be sensationalist sometimes, you can see what IBMers are saying in the comments.

http://www.businessinsider.com/ibm-to-freeze-salaries-of-some-employees-2012-6

glassdoor.com is another site to guage morale.

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. " -Buffett

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Palantir

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Re: IBM - International Business Machines
« Reply #3 on: October 13, 2012, 11:25:03 AM »
Interesting articles...
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hellsten

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Re: IBM - International Business Machines
« Reply #4 on: October 13, 2012, 11:32:28 AM »
Yeah businessinsider.com has been running some pretty brutal articles on how IBM is working its employees.  While BI may be sensationalist sometimes, you can see what IBMers are saying in the comments.

http://www.businessinsider.com/ibm-to-freeze-salaries-of-some-employees-2012-6

glassdoor.com is another site to guage morale.

Thanks. The comments are actually more interesting than the article:

Quote
Tech consulting is the biggest scam business in the world. It's right up there with Finance.

Maybe that's why Warren likes the company ;D He understands what Arthur C. Clarke wrote:

Quote
Any sufficiently advanced technology is indistinguishable from magic.

IBM's products are magic to many customers. To others they are something very different  :-X

Green King

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Re: IBM - International Business Machines
« Reply #5 on: October 13, 2012, 12:33:27 PM »
Quote
Any sufficiently advanced technology is indistinguishable from magic.

Where did you get this one ???
GK

Liberty

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Re: IBM - International Business Machines
« Reply #6 on: October 13, 2012, 12:38:39 PM »
Quote
Any sufficiently advanced technology is indistinguishable from magic.

Where did you get this one ???

http://en.wikipedia.org/wiki/Clarke's_three_laws

Green King

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Re: IBM - International Business Machines
« Reply #7 on: October 13, 2012, 01:40:48 PM »
Quote
Any sufficiently advanced technology is indistinguishable from magic.

Where did you get this one ???

http://en.wikipedia.org/wiki/Clarke's_three_laws

Thanks
GK

tnp20

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Re: IBM - International Business Machines
« Reply #8 on: October 13, 2012, 10:44:32 PM »
As an ex-IBMer, I also support Bench's comments. I left a few years ago and still have diminishing circle of friends still at IBM...the good ones are leaving one by one.

Bottom Line benefits:
IBM is taking an axe to the costs...retirement, healthcare plans, benefits, salaries, bonuses, real estate - chop chop chop....there probably isn't much to chop in USA and Europe after 5+ years of heavy chopping.

Top Line benefitsL
Top line is grown through acquisition of mostly mid/large software companies. - once the company is acquired, their sales force and developers are essentially pushed out.  They are hiring though in Asia , Mexico and Brazil...they are banking on sales growth in Emerging markets. - thats where they are doing most of the hiring.

I recently had lunch with one of my former managers at IBM. A top notch guy, he is leaving IBM after 24 years...he was Blue to the bone and to see him leave implies things must be really bad.

IBM is certainly repositioning for growth in Asia/Emerging markets - its significantly decreasing its footprint in USA ans Europe. - not clear if this shift in balance will produce the results......

There is some great entrenched IBM technology out there for sure......but not sure I would buy IBM at this lofty price....closer to $100-120 might be ok but not here.

IBM still has great research. The labs produce really cutting edge stuff. They are making a big push for cloud just like everyone else.

You buy IBM for the entrenched technology position, not for growth.
« Last Edit: October 13, 2012, 10:52:33 PM by tnp20 »

Shawn

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Re: IBM - International Business Machines
« Reply #9 on: October 14, 2012, 11:11:08 PM »
I remember Warren Buffett said once that he was 85% Graham and 15% Phil Fisher. Whenever I seen these purchases like Wells Fargo, Coca Cola, American Express or in this case IBM I can see how some of these purchases are in-line with Fisher's philosophy.

IBM has some very high ROE.... I would buy it too lol.