Systems, Servers and Cloud

By pjain      Published July 21, 2020, 7:26 p.m. in blog Invest   

IBM Xx Debt// Revenues\ EPS-engineering, Laggard in Cloud, Failed in AI/CogSci

Q2'20 - Revenues fall a Lot, EPS jump, Stock Spurts

  • Under Covid-19, Revenues fell highest -5.5% highest since 2015
  • However, this follows MANY quarters of declining revenues

  • M 111b $77b 5y$-4%e-7%

  • y=5% div=6.5 DE=3.2
  • cP=127 [(90 - 159) 216] PEt=12x, PEf=10x

SEG: $6.3b Global Technical Services

SEG: $5.8b Cloud, Red Hat and AI, Cogsci

  • Red Hat sales boosted its cloud business up 30% Y/Y to $6.3BN.

SEG: Legacy Mainframes, Servers

SEG: $3.9b Global Services, Consulting

SEG: $1.8b Systems revenue

RISK: High Debt financed Dividend could get cut as reaching FCF - little room to invest internally

IBM will keep handing almost every penny it makes to its shareholders, as was the case in Q2, when IBM’s free cash flow was $2.3 billion, and the company returned $1.5 billion to shareholders in dividends. IBM ended the second quarter with $14.3 billion of cash on hand which includes marketable securities, up $5.2 billion from year-end 2019. Debt, including Global Financing debt of $21.9 billion, totaled $64.7 billion.

RISK: Weak Management - Prior Bean Counter CEO replaced by AI-cloud failed Arvind

"Our clients see the value of IBM’s hybrid cloud platform, based on open technologies, at a time of unprecedented business disruption .. We are committed to building, with a growing ecosystem of partners, an enduring hybrid cloud platform that will serve as a powerful catalyst for innovation for our clients and the world." -- Arvind Krishna, IBM chief executive officer.

RISK: IBM does aggressive EPS-enginnering

[In Q2'2020] as usual, this EPS number was the product of aggressive accounting magic because the unadjusted EPS was $1.52, or 30% below the adjusted number. The GAAP to non-GAAP bridge was, as usual, ridiculous and a continuation of an "one-time, non-recurring" addback trend that started so many years ago we can't even remember when, but one thing is certain: none of IBM's multiple-time, recurring charges are either one-time, or non-recurring.

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