YCharts, Inc.: Focus Report on International Business Machines Corp. (IBM)

By Harvest Exchange

YCharts Research publishes stock-specific and sector research to institutional investors. Our stock-specific reports focus on three fundamental valuation drivers (revenue growth, profitability, and investment level & efficacy) and on making rational projections of these drivers to generate transparent, data-driven intrinsic value ranges.

What effect will the technological paradigm shift to “the Cloud” have on International Business Machines Corp. (NYSE:IBM)? Was Buffett misinformed and confused when he invested in this old-school tech giant? What are the shares of Big Blue worth? Read our take in the latest YCharts Focus Report.

IBM

 

Focus on International Business Machines Corp. (IBM)

International Business Machines Corp. (NYSE:IBM) is like Japan. Both have their own, distinctive cultures that value conformity and technical prowess. Both are known for their rigidity and hierarchy. And both react to structural change in a way that this author terms “the earthquake model.”

The earthquake model of structural change implies a slow build-up of tension which causes no noticeable difference for years, followed by a sudden, disruptive shift. Japan has experienced political and economic earthquakes many times in its history, and, interestingly enough, so has International Business Machines Corp. (NYSE:IBM).

Lou Gerstner’s tenure as CEO (1993-2002) marks a notable IBM earthquake. The company, which had been the nearly uncontested leader in the tech world for decades as a producer of mainframe computers, PCs, and consistently unexciting but functional software, nearly went bankrupt before Gerstner transformed it into mainly an IT services firm.

The ground is again moving under International Business Machines Corp. (NYSE:IBM)’s feet. Pundits claim that the present changes could be the end of Big Blue. Will the company’s edifice remain standing when the shaking stops?

IBM VS S&P 500

What’s Moving?

International Business Machines Corp. (NYSE:IBM) is in the midst of an earthquake, but the cause of the Tech firmament’s movement has an ethereal name. It is the transfer of storage and computing power onto the Internet commonly known as The Cloud.

The linked Wiki article provides much more in-depth information about the Cloud, but for this report, we will assess its probable effect on each of IBM’s three main business lines: Hardware, Software, and Services.

Before going any further, let’s take a look at the most recent levels of annual revenues and profits for each of these lines:

IBM revenues

Focus Report on International Business Machines Corp. (IBM) by Harvest

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