IBM Shares Stumble Ahead of Earnings

By Douglas A. McIntyre Updated Jan 12, 12:58PM EST · Published Apr 15, 9:05AM EDT

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[cnxvideo id=”625459″ placement=”ros”]International Business Machine Corp.’s (NYSE: IBM) share price had matched the S&P 500 over the past year, after a long period of underperformance. But the stock has reverted to a period of decline ahead of the company’s earnings. It has fallen 3.5% in the past month, against a 1.5% improvement in the S&P 500.

Wall Street continues to be concerned that IBM’s long-term drop in revenue will continue, which pressures the bottom line unless the tech firm keeps up its layoffs. IBM had revenue of $104.6 billion in 2012. Last year, that figure fell to $80.0 billion. Net income in 2012 was $16.6 billion, which fell to $11.9 billion in 2016. IBM has sold some businesses over the period, as well as purchased some. CEO Ginni Rometty has promised a turnaround quarter after quarter. It has never materialized.

IBM’s core business from the past remains in decline. The company’s bet on the future is primarily on cloud computing and what is widely known as artificial intelligence. Much of this effort is under the umbrella of the Watson brand, which IBM has pushed relentlessly with tens of millions of dollars in marketing. IBM has a habit of not attaching dollar figures when it announces Watson customers.

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IBM’s top and bottom lines did not move much in the fourth quarter. It is also open to question how its cloud and AI businesses are performing. Revenue was $21.8 billion, off from $22.1 billion in the same quarter of 2015. Net income was $4.5 billion, almost flat with the prior period.

In her comments about the entire year 2016, Rometty said:

In 2016, our strategic imperatives grew to represent more than 40 percent of our total revenue and we have established ourselves as the industry’s leading cognitive solutions and cloud platform company. IBM Watson is the world’s leading AI platform for business, and emerging solutions such as IBM Blockchain are enabling new levels of trust in transactions of every kind. More and more clients are choosing the IBM Cloud because of its differentiated capabilities, which are helping to transform industries, such as financial services, airlines and retail.

At least two of the comments cannot be supported. The first is that IBM is “the industry’s leading cognitive solutions and cloud platform company.” The other is that “IBM Watson is the world’s leading AI platform for business.” Such broad and unsubstantiated comments only weaken IBM’s position with investors.

As investors dig through IBM’s earnings by segment, it is hard to tell where the various components of cloud and AI are buried.

IBM’s first-quarter earnings will be a watershed for shareholders. IBM needs to show even the most modest growth. And it particularly needs to support the statements that it is a leader in markets that analysts believe are dominated by other companies, particularly Amazon and Microsoft.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.