Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) has released its third-quarter equity holdings. He once again sold a large portion of his stock in International Business Machines Corp. (NYSE: IBM), another stake through the heart of Wall Street’s confidence in the faltering big tech company’s turnaround. Buffett repeatedly defended his IBM investment in the past but has recently consistently sold the stock.
According to Berkshire’s 13-F for the third quarter, Buffett’s holdings in IBM dropped by a third to 17 million shares.
24/7 Wall St.’s Jon Ogg wrote:
What was missing here in the largest holdings from prior quarters was the investment in International Business Machines Corp. (NYSE: IBM). Buffett had already shown in prior reports that he sold off some of the stake in Big Blue, and the value of that stake at the end of 2016 was $13.5 billion. This stake has been taken even lower to 37.03 million shares at the end of the third quarter, versus 54.08 million shares at the end of the second quarter.
IBM has started to look like the next General Electric Co. (NYSE: GE). It is bloated with too many divisions that underperform, and a long-time CEO in Ginni Rometty, who has run IBM since the start of 2012. The company has posted 22 consecutive quarters of revenue declines. The gross profit margins and lack of growth in some of its divisions make them candidate for sale or significant downsizing. Some analysts believe that Rometty’s job cuts and outsourcing jobs from the United States have not been nearly enough.
IBM’s stock performance in 2017 has been awful. Shares are down 13.2% to $144. Over the same period, the Dow Jones Industrial Average is 18.45% higher to 23,409. Over the past five years, IBM’s shares are off 22% while the Dow has risen 80%.
When IBM announced its third-quarter results, Rometty said this:
In the third quarter we achieved double-digit growth in our strategic imperatives, extended our enterprise cloud leadership, and expanded our cognitive solutions business. There was enthusiastic adoption of IBM’s new z Systems mainframe, which delivers breakthrough security capabilities to our clients.
Buffett did not believe her, and apparently very few other people did.
Buffett’s opinion is that IBM has no future, or at least none that is very bright.