Tuesday, October 21, 2014

Managing IBM And Shareholder Value

IBM's stock price dropped 7% after it announced that failed to meet its financial goals.  Actually, IBM's revenue is about what it was it 2008.  It has been maintaining its stock price by financial engineering.  Since 2000 IBM has spent $108 billion on stock buybacks, including $12 billion in the first six months this year.  It has also returned $30 billion to investors via dividends.  Much of this spending has been financed with debt.

Capital spending has been $59 billion and spending on acquisitions has been $32 billion.  It has spent more on maintaining its share price than it has on growing the business.  IBM recognizes that it has to move into new businesses in a rapidly changing marketplace dominated by new technology.  It has been late to the game and its new businesses have not grown fast enough to compensate for the decline in its traditional businesses.  Managing its stock price has not been good for its long term prospects as a leader in its business sector.

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