Technology
Why Key Analyst Remains Negative on IBM After Earnings
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International Business Machines Corp. (NYSE: IBM) is still facing problems after it reported earnings late Monday. One key analyst sees the issue as a question of the quality of earnings. Despite Big Blue beating estimates, the results are still somewhat weak, looking at years past, and one key analyst is taking a very negative stance on this company going forward.
Although earnings per share (EPS) topped estimates, IBM booked a $1.0 billion non-U.S. tax gain, which offset a major workforce rebalancing of $1.5 billion. Credit Suisse believes the quality of earnings was again low and the manner in which IBM has chosen to manage its business seems unsustainable.
The brokerage firm sees remaining secular and structural challenges facing IBM, and specifically it sees limited improvement in Services and Software margins.
In January, management noted that workforce rebalancing would be down slightly year over year. However, despite this, the company booked a $1.5 billion charge for this year, already materially higher than the annual charges per year for the previous five years of roughly $0.8 billion per year. It seems that the company waited for the tax gain to enact this restructuring, which Credit Suisse believes is not a sustainable way to run a business. While the company hopes to save $2 billion worth of costs from the current program, the brokerage firm notes that the previous restructurings have proven less and less effective. Indeed the firm noted $3.1 billion of charges have been taken since 2013 and pretax income is down by $7.3 billion, with revenues per employee 8% lower versus 2013.
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