IBM’s Stock Refuses to Recover, as Its Posturing Falls on Deaf Ears

By Douglas A. McIntyre Updated Jan 12, 7:40AM EST · Published Sep 29, 6:40AM EDT

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IBM’s Stock Refuses to Recover, as Its Posturing Falls on Deaf Ears — © Thinkstock

About five years ago, International Business Machines Corp. (NYSE: IBM) announced “Ginni” Rometty would become the company’s board chair in addition to her role as chief executive officer. As an ugly anniversary present, IBM continues to be one of the worst performing Dow components this year. And, over the course of the past five years, it has dropped 31% while the Nasdaq has risen 106%. There is no catalyst likely to cause the shares to recover.

IBM’s shares have fallen so much because the company has reported revenue declines for 21 quarters. But that is old news, and stock prices are usually valued on what investors believe about the future. In IBM’s case, this is primarily a question of whether its cloud and AI initiatives can grow fast enough to more than offset attrition in its traditional hardware, software and consulting businesses. The evidence at this point is that the answer is no.

IBM puts out about a press release a day to show its progress. In reality, the flood of information only shows how modest, or nonexistent, IBM’s advances to fix its business have been.

Among the most misleading threads of IBM announcements is its lead in patent grants. According to the company, it has had more patent grants in the United States every year for 24 years. In 2016, it was granted 8,088 patents, the first time a company had topped 8,000 in any one year. IBM’s descriptions for the reasons behind its patent leadership:

This is the result of our commitment to strategic R&D that drives progress in business and society. IBM provides its researchers with freedom, time and resources to explore and patent their ideas. And when those ideas take off, IBM is ready to use the patented inventions to develop leading-edge products and services and protect its freedom of action in the marketplace.

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Contrast the number to Amazon.com Inc.’s (NASDAQ: AMZN) patent grants for the same period, which hit 1,662, and Apple Inc.’s (NASDAQ: AAPL) at 2,012, and it is clear patents are hardly a measure of success.

Another major announcement from IBM that appeared to be important, at least according to the company, was a research alliance with MIT. The marriage actually may mean very little to IBM’s future. The two organizations announced:

IBM and MIT today announced that IBM plans to make a 10-year, $240 million investment to create the MIT–IBM Watson AI Lab in partnership with MIT. The lab will carry out fundamental artificial intelligence (AI) research and seek to propel scientific breakthroughs that unlock the potential of AI. The collaboration aims to advance AI hardware, software, and algorithms related to deep learning and other areas; increase AI’s impact on industries, such as health care and cybersecurity; and explore the economic and ethical implications of AI on society. IBM’s $240 million investment in the lab will support research by IBM and MIT scientists.

There is no evidence that IBM will get a dime of revenue because of the expensive relationship.

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IBM can continue to announce scores of relationships and product innovations. Few have proven, and may never prove, that the company has made advances to put its revenue growth back on tract, which is the primary reason the shares have not recovered and likely will not.

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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.