One media commentator went so far as to say that Google (GOOG) is hiring too many engineers and working on too many projects. "Google has made a huge effort to hire the best technical people it can find. Thousands of PhDs are now working in various Google labs, and many of these people were hired from other successful businesses", writes Robert X. Cringely.
On the other side of the universe is IBM (IBM) which has just borrowed $11.5 billion to buy-back shares. Yes, that’s right, buy back shares.
Why? It will increase earnings per share. Fewer shares, same earnings equals better EPS. EPS for 2007 will rise 13% to 14% to between $6.85 and $6.91 a share. Before the buyback, the increase was only pegged at 11%.
It is hard to say that IBM should have used all of that money to develop new products and hire new engineers, but it might have been nice if the company announced it was going to take the risk of investing a few more billion into potential innovation for future revenue.
In 2006, IBM’s revenue was $91.4 billion. Operating income was $13.6 billion. In 2000, IBM’s revenue was $88.4 billion, and operating income was $12.3 billion. Now, that’s progress.
During the same 2002 to 2006 period, Microsoft’s (MSFT) revenue roughly doubled to $44.3 billion. Operating income rose about 60% to $16.5 billion. Google was launched in 1998, and in 2000 had virtually no revenue.
IBM’s buy-back is financial engineering gone mad, and a poor testament to one of the great innovators of the 20th Century.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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