IBM has added $5 billion to its buyback plan, giving investors an incentive to remain patient as the company tries to reinvent itself.
The board authorized the funding Tuesday along with its regular quarterly dividend, IBM said in a statement. The Armonk, N.Y.-based company now has $6.4 billion available in its stock repurchase program.
IBM is buying back more shares after the stock hit a three-year low on Oct. 21 in the wake of Chief Executive Officer Ginni Rometty’s decision to scrap a long-held earnings goal for 2015. The company has already repurchased $19 billion worth of stock in the past four quarters to satiate investors and to reduce the number of shares in circulation, which helps boost earnings per share.
“We will continue to make the investments and changes necessary to manage our business for the long term and to shift to higher-value offerings,” Rometty said in the statement. “At the same time we remain fully committed to returning significant value to shareholders.”
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The company said it plans to ask for more buyback funding at the April 2015 board meeting.
IBM increased its buyback plan last year by $15 billion. That was the biggest addition IBM had authorized in five years, in proportion to its year-end market value, according to data compiled by Bloomberg.
IBM’s buybacks have become a point of contention in recent weeks. Despite revenue declining in the previous nine quarters, IBM had been able to boost per-share earnings by getting rid of less-profitable operations, reducing taxes and the number of shares outstanding, and gradually building new businesses like big-data analytics and cloud computing.
On Oct. 20, IBM’s tactics fell short as sales dropped for a 10th straight quarter and it became more apparent that the company wasn’t increasing new revenue quickly enough to make up for dwindling demand for servers and other hardware. The company projected a drop in adjusted profit for 2014, its first since 2002.
The technology giant is now returning funds to investors who have held on even after an 11 percent tumble since the five- year profit roadmap was abandoned, compared with a 4 percent gain in the Standard & Poor’s 500 Index through Monday.
IBM shares were already getting scarcer as the company repurchases reduced the share count below 1 billion at the end of June for the first time since at least 1999, when it last split its stock. Of the 40 companies around the world with a market value of more than $150 billion, IBM had the fifth fewest shares outstanding, according to data compiled by Bloomberg.
With the new authorization, the company could buy back about 4 percent of IBM’s $161 billion market value as of Tuesday.
In April, IBM said it planned to spend less this year than the $13.9 billion it spend on share repurchases in 2013. By the end of the third quarter this year, the company had already bought back about $13.6 billion worth of its stock.
Rometty is under pressure to manage IBM through a shift in corporate spending that has dragged on her company’s revenue. Technology customers are increasingly moving data and software to the cloud, instead of on servers on-site, lessening the demand for IBM hardware and the sales and maintenance staff who support it.
To cope, Rometty has turned IBM’s focus to areas like cloud services, big-data analytics and mobile computing.