IBM: The Grey Gardens of Technology Stocks

IBM - IBM: The Grey Gardens of Technology Stocks

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IBM (NYSE:IBM) was once the flagship of American enterprise, an unassailable giant.

You know, like General Electric (NYSE:GE). (Whoops.)

As it prepares to report its June quarter earnings, with analysts expecting $3.03 per share of earnings on revenue of $19.7 billion and hoping for $3.06, IBM is acting like a drunk uncle at a frat party.

Cryptocurrency? Robot lawyers? Patent trolling? Really, IBM?

Next, you’re going to tell me a U.S. President could take Russia’s side against his own intelligence agencies. (Whoops again.)

IBM, The Crypto Company

This is not your father’s IBM. IBM today has more employees in India than in the U.S. A company that once bragged about its employment stability is now accused of age discrimination. A company that, early this decade, routinely brought in revenue at a $100 billion/year pace, now can’t hold $80 billion/year in a computing market that has exploded.

So it makes a certain sad sort of sense that IBM would want to back a cryptocurrency, in this case a “stablecoin” pegged to the U.S. dollar.

There is already such a stablecoin. It’s called Tether, and while Tether runs on a public blockchain it has been accused of, shall we say, shenanigans. IBM’s stablecoin, called Stronghold USD, will be built on a private blockchain, and used only by institutions. (You trust institutions, don’t you?)

It’s all part of IBM’s efforts to become a power in blockchain. It is pouring money into all sorts of blockchain efforts, believing this can be its comeback. But these forays into crypto don’t change the core of IBM. It’s like if I colored my hair black, would you think me 40?

IBM, The Patent Troll

IBM has always been known for its enormous supply of patents. Whole books, good ones, have been written about its patent strategy.

Now IBM is in court trying to shake down Groupon (NASDAQ:GRPN) over patents that date from Prodigy, the 1980s-era pre-internet online service. IBM is saying, in court, that it invented single sign-on technology for the internet, years before the internet existed.

IBM’s patent strategy is now more akin to that of a patent troll. It even sells its patents to trolls, non-operating entities that exist only to extort operating companies by redefining narrow inventions as broadly as possible.

IBM is also seeking patents on obvious things like out-of-office email replies. To many people in the patent field, it has becoming a laughingstock.

Buying IBM Stock

You buy most tech stocks for growth.

You haven’t been able to buy IBM that way for years. There are stories about how the second quarter will be its “third quarter of growth,” pointing to its growing cloud revenue. It may even beat this quarter’s earnings estimate.

But this is because of its latest z-14 mainframe, launched last year. IBM has a mainframe monopoly. It generates huge profits when it delivers new mainframes. But that kick is usually short lived. Once those who need mainframes get their new mainframes, the mainframe business falls.

You buy IBM for its dividend. The company has 917 million shares outstanding, a number that has been falling for years as it buys back stock to make its earnings per share look better.

IBM is devoted to its dividend and keeps raising it. It’s now at $1.57 per share, which costs about $1.435 billion each quarter to maintain. IBM’s net income last quarter came to $1.679 billion. The balance sheet also shows $40.5 billion of long-term debt. IBM’s credit rating was dropped to A1 last year.

Reading IBM’s press releases you can almost believe it is still a leader in technology. It’s not. It hasn’t been for over a decade. IBM is the Grey Gardens of technology, and while income investors can still make money on that, the rest of us need to drive on by.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.

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