IBM, Abandoned by Buffett and Wall Street, Sinks Lower

By Douglas A. McIntyre Updated Jan 12, 12:01AM EST · Published May 6, 7:23AM EDT

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Warren Buffett’s huge annual convention of his investors was a reminder of his investment philosophy. He has abandoned International Business Machines Corp. (NYSE: IBM) as a technology company of the past that has no future. He embraced Apple Inc. (NASDAQ: AAPL) as the anchor company of the future of tech.

Buffett, the decades-long chief of Berkshire Hathaway Inc. (NYSE: BRK-B), said he no longer owns a single share of IBM. He wants to buy more Apple shares. He likes its future, its technology, and its share buyback and dividend. Among his comments on Apple were “I love the idea of having our 5 percent, or whatever it is, maybe grow to 6 or 7 percent without our laying out a dime.”

Then, there is IBM. Buffett believes that IBM was among his poorest investment decisions of the past several years. It is easy to justify his position. Over the past two years, Apple’s shares are higher by 103% and IBM’s are down 3%, against a 30% improvement in the S&P 500.

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It would be instructive to know exactly why Buffett dumped IBM. Investors continue to crave a look at the exact logic behind his decisions. Certainly, IBM’s lack of success as it entered the cloud computing and artificial intelligence segments is among the reasons, although IBM’s CEO Ginni Rometty continues to sell IBM’s advances. In its most recently reported quarter, IBM’s revenue rose only 5% to $19.1 billion. Per-share earnings dropped 2% to $1.81. Rometty parrots what she has said about the company’s earnings for many quarters:

In the first quarter we maintained momentum in our business, with reported revenue growth in total and across our major segments. These results reinforce that our clients value our innovative technologies, our industry expertise and our commitment and actions for the responsible stewardship of their privacy and data. This is also reflected in our leadership positions in enterprise cloud, AI and security.

It is a story IBM management has to tell itself over and over again. It has flooded the market with advertising for Watson, the proxy for IBM’s advanced technology. Despite an investment that has to be in the hundreds of millions of dollars, Watson has failed to make the sale.

Apple also has diversified by building on its relationship with hundreds of millions of customers. At one point these people only bought Apple hardware. The company’s future appears to be Apple’s ability to sell its growing customer services. Apple has more than one future. Each is very healthy.

IBM has no future at all, based on Buffett’s decision, both orphaned by him and the larger market.

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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.