IBM reported its Q1 results last night and fooled the Wall Street crowd into believing that business is great. I think, however, that many of Enron’s accountants must now be working at IBM.
How come? IBM’s profits are more a result of financial engineering than strong business fundamentals.
Myth #1: IBM said it’s sales increased by 11% last quarter. Ha! Once you back out currency gains from the falling dollar, IBM sales only increased by 4%. I’m not impressed with a company that is growing by only 4%.
Myth #2: North America sales increased by 8% but sales from the BRIC countries (Brazil, Russia, India, and China) increased by 26%. This shows that Asia is still the sweetest part of the stock market curve to be invested in and how vulnerable IBM is.
Myth #3: IBM restructured its pension plan and will be booking a $950 million gain from that change. This is the type of financial engineering that makes profits look good when they actually stink.
Myth #4: IBM increased its stock buyback to $12 billion. The reduction is outstanding shares increased profits by 13 cents per share. Stock buybacks are a great thing but it needs to be combined with strong top line sales growth before I am impressed. Plus, IBM has been taking on debt to finance these buybacks, which is a very red flag.
Since a huge chunk of IBM’s paper profits come from financial engineering, it has now become more of a financial firm than a technology company. And it is a train wreck waiting to happen.
Related Posts
- Coach loves Asia (05/29/08)
- Sales soar at China Battery (07/29/08)
- BMW sales soar in China (09/04/08)
- VW sales grow by 37% in China (10/12/09)
- Volkswagon sales climb 9% in China (04/14/09)
