IBM's stock slumps into rare annual decline

Bloomberg NewsJanuary 1, 2014 

Earns IBM

File photo showing sign at IBM offices in San Jose, Calif.


— IBM, the world’s largest provider of computing services, hasn’t convinced investors that it can pull out of a sales slump, sending the stock to its first annual decline since the financial crisis in 2008.

Even as the company boosted its dividend and added about $20 billion to its buyback plan, the stock became the only loser in the Dow Jones industrial average in 2013. The shares dropped 2.1 percent last year, compared with a 26 percent gain for the index.

Revenue has fallen for six straight quarters, dragged down by sluggish demand for computer hardware. That’s forced CEO Ginni Rometty to rely on job cuts, tax gains and asset sales to keep increasing earnings per share. Technology investors would prefer a company that’s growing, said Todd Lowenstein, a portfolio manager at HighMark Capital Management.

“We don’t think investors are going to be paying up for financially engineered EPS (earnings per share),” said Lowenstein, who helps to oversee $17 billion in assets. He no longer holds IBM shares.

The technology giant, based in Armonk, N.Y., is coping with an industrywide transition into the cloud era, where information is stored online instead of on-site. While IBM is getting an increasing amount of revenue from cloud services, the shift has spawned a new crop of competitors and eroded demand for traditional hardware and services.

Still, the company remains on target to reach $20 in adjusted earnings per share in 2015, up from $15.25 last year. Cost reductions and a shift into more profitable businesses have helped to maintain the growth.

Michael Fay, an IBM spokesman, declined to comment on the stock trading.

The company, which employs thousands of people in the Triangle, embarked on a restructuring program last year, cutting jobs globally. More than 3,300 workers were dismissed in the U.S. and Canada alone, according to AllianceIBM, an employee group. Some U.S. contract workers also were ordered to lessen their hours, according to a memo obtained by Bloomberg.

Even as earnings per share grew, the stock continued to fall – signaling that investors were increasingly concerned that IBM’s strategy was failing to produce growth, said Kulbinder Garcha, an analyst at Credit Suisse.

“It’s now coming to a point where they are almost doing everything they can to get to that earnings number,” Garcha said. He downgraded IBM’s stock to the equivalent of a sell rating in 2013. “They need to start thinking about some serious reinvestments and repositioning the company.”

Half of the analysts who covered IBM recommended buying it at the beginning of 2013, according to data compiled by Bloomberg. That has fallen to less than a third today.

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