Desperate IBM Investors Should Look to Director Michael Eskew

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Investors in International Business Machines Corp. (NYSE: IBM) have become more desperate by the day as its recent earnings and those of Microsoft Corp. (NASDAQ: MSFT) show the extent to which IBM cannot recover from mistakes made by recently departed CEO Ginni Rometty and desperate new CEO Arvind Krishna. Decisions about IBM’s future and a more qualified management team fall to Michael L. Eskew, IBM’s lead director. He has been on the board since 2005, which means he predates Rometty’s appointment as chief executive in 2012.
As lead director, it is Eskew’s job to work with IBM’s independent directors in their oversight of IBM’s management. Eskew is a former board chair and chief executive officer of United Parcel Service. According to IBM’s most recent proxy, Eskew made $598,376 in the lead director position.

Eskew is also a director of Allstate Corp. (NYSE: ALL), Eli Lilly and Co. (NYSE:  LLY) and 3M Co. (NYSE: MMM). Interestingly, Allstate’s stock price has been battered in the past year and is down 6%, compared to an increase of 18% in the S&P 500. 3M’s shares also are underperforming, though they are up 5% over the period. Eli Lilly’s share price has risen 51%.

IBM’s stock is down 13% over the past year, due primarily to quarter after quarter of falling revenue. In the most recent quarter, revenue dropped to $20.4 billion from $21.8 billion in the same period the year before. Earnings fell from $4.11 per share to $1.51. IBM’s Cloud & Cognitive Software segment, the key to its turnaround, posted a decline in revenue from $7.2 billion in the year-ago period to $6.8 billion.

IBM’s success is based on the nearly impossible task of catching cloud computing leaders Microsoft and Amazon.

Microsoft’s most recent quarterly figures topped investor expectations. Revenue rose 17% to $43.1 billion. Earnings were up 34% to $2.03 a share. The revenue of Microsoft’s cloud operations, which it labels Intelligent Cloud, hit $14.6 billion, a 23% jump from the same period a year ago.

Perhaps the starkest contrast is that Microsoft is slightly more than twice IBM’s size based on revenue. However, its market capitalization is $1.76 trillion to IBM’s $108 billion.

Eskew needs to engineer the kind of change the board of faltering Intel Corp. (NASDAQ: INTC) recently made. Directors there ousted CEO Bob Swan and replaced him with Pat Gelsinger. It had become clear that Intel was falling behind its major competitors and that management showed no sign of improving its situation.

Eskew is the only catalyst that can swing IBM back in the right direction. If he sticks with current management, IBM will continue to be America’s most troubled large tech company.

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