IBM's lack of attractiveness for investors

According to foreign media reports, the past week was a difficult week for IBM. IBM shares fell 2% on Wednesday, dragging the Dow Jones Industrial Average down by more than 100 points. Last weekend, the Dow Jones Industrial Average closed at a 2% gain, and IBM's stock price is still falling. The cumulative decline last week reached about 3%.

The fact that stocks fell for a week or even disappointments in the first quarter was not a reason why a company’s stock was not favored by investors. Short-term fluctuations in stock prices had little impact on long-term investors. However, IBM's revenue has declined or increased slightly for eight consecutive quarters. Managing profit growth is a short-term move. The goal is to cover up the long-term decline in revenue.

The loss of IBM management's management of IBM's weak revenue is basically in line with the chief executive of CEO Rome Romen (Virginia Rometty). Luo Ruilan recently defended management in an interview and promised that revenue will increase soon. However, the slow growth of IBM's revenue indicates that revenue growth is more difficult than she expected.

Luo Ruilan uses the language of “high-end atmosphere” to explain growth issues. He calls himself a company steward and considers long-term strategies. Luo Ruilan is very proud of IBM's history, saying that "if there is no IBM technology, the plane will not fly and the train will not run and the bank will not function properly." However, with the rapid development of digital technology, any company may be quickly marginalized. Scott McNealy's Sun, and Steve Ballmer's chief executive, Microsoft, have all demonstrated this.

Managing profits will not lead to long-term success of the company. Luo Ruilan may be proud of his ability to manage profit growth. However, it is well known that IBM’s profit growth was mainly due to the divestment of China’s business, the sale of PC and X86 server business to Lenovo, and significant layoffs. All these measures stimulate only short-term profit growth, and the cost is the long-term growth of revenue. The business after the sale of Luo Ruilan is up to 6 billion U.S. dollars (about 37 billion yuan).

If IBM can have new business to replace the business being sold, these practices are understandable. Even if these businesses can not bring profits, but at least give investors hope. IBM's involvement in cloud computing was too late to demonstrate its ability to surpass industry leaders.

The real problem is reduced R&D budgets, increased liabilities, and large-scale repurchasing of shares CNBC (NBC Financial Channel) reported that in the first quarter of this year, 121 companies in the S&P 500 had cut their R&D budgets. IBM. The short-term effect of cutting R&D budgets is to boost profits, but what are the long-term effects?

The Washington Post reported last week that many companies spent large sums of money on repurchasing stocks instead of investing in R&D, new products, strengthening marketing, and stimulating sales growth. This year, corporate repurchase stocks will cost 500 billion U.S. dollars (approximately 308.414 billion yuan), 34% higher than last year. To make matters worse, the funds for the repurchase of stocks are not all from the cash flow obtained from the operations, but are from debt. In this regard, IBM can also be described as a "model."

In the first quarter, IBM repurchased more than 8 billion U.S. dollars (approximately RMB 49.3 billion) worth of stocks. Almost all of the funds came from borrowing. By reducing tradable shares, IBM can boost earnings per share and stock price in the context of lower revenue and operating profit.

As a result, IBM's debt-to-market ratio, which was once the blue chip of blue chips, hit the highest level ever. Investors who are concerned about long-term prospects may not agree with the strategy of Luo Ruilan and IBM. On the one hand, profits have increased. On the other hand, revenue and R&D spending have both declined. However, as far as investors are concerned, they still hope to see that IBM, an established company, can emerge in all aspects of its future development.