After underperforming the stock market for many quarters, International Business Machines Corp. (NYSE: IBM) shares almost certainly will have dropped another 13% this year to $139. That is down from $210 in March of 2013. IBM’s turnaround plan continues to be rejected by investors.
Much of the disappointment in the tech company is because it has been unable to replace its hardware and software legacy products with new cloud-based and AI products — at least not at a rate that would pull IBM’s revenue up. Its major branded product in new age technology is Watson. While Watson has been the source of press releases and small customer alliances, outsiders have trouble seeing what it does to sharply increase IBM’s sales. Granted, Watson may be one of the most impressive product advances among large companies in the sector recently, but what it does for IBM may be very modest.
In its most recent 10-K, IBM described its major goals, looking ahead:
The company’s business model is built to support two principal goals: helping enterprise clients to become more innovative, efficient and competitive through the application of business insight and IT solutions; and providing long-term value to shareholders. The business model has been developed over time through strategic investments in capabilities and technologies that have superior long-term growth and profitability prospects based on the value they deliver to clients.
Paying clients have been underwhelmed by the innovation and applications, which has undermined the share value for long-term shareholders.
In 2016, IBM faces another brutal year unless its financial performance changes radically. Its revenue dropped to $19.3 billion in the most recent quarter, compared to $22.4 billion in the same quarter a year ago. EPS from continuing operations fell from $3.46 to $3.02. Among the worries about IBM is that it cannot take hundreds of millions of additional dollars beyond its current expense cuts, which reduced its total expenses and other income to $5.8 million in the most recent quarter from $6.5 billion in the same period a year ago. At some level of cuts, it loses an expense base that makes it an effective competitor.
IBM’s shares are set for another down year in 2016.