IBM Stock Can’t Take a Ninth Year of More-of-the-Same

Ginni Rometty is deservedly well-respected, but she's just not delivering for the owners of IBM stock.

In the nearly-eight years Ginni Rometty has served as CEO of International Business Machines (NYSE:IBM), IBM stock has lost 23% of its value. From the shares’ peak in early 2013, while her predecessor’s initiatives were still in motion, the IBM stock price has fallen 33%.

9 Stocks That Every 20-Year-Old Should Buy
Source: JHVEPhoto /

The  performance of IBM stock, of course, merely reflects the company’s  financial performance. Its revenue peaked in 2011, and its profits peaked in the following year. Although IBM has managed to occasionally grow its top and bottom lines, they have continued to decline in the longer term.

There’s one underlying reason why IBM has failed to grow, causing International Business Machines stock to struggle, in an environment where seemingly every other technology giant has managed to do so. That is, the company is offering the wrong products at the wrong time at the wrong price.

The more nuanced answer, however, is that Rometty, its CEO, isn’t getting the job done.

Missed Opportunities

Ginni Rometty is a well-polished executive who says all the right things, impresses in public forums, and has avoided the type of scandals that generally lead to CEOs being removed from their position.

She’s also been a loyal IBM employee, starting with the company in 1981 as a ground-level systems analyst. No one can deny she’s earned her way to the company’s top spot, having done many of the jobs  other IBM employees are doing now.

But she’s been calling the shots for eight years. That’s an eight-year stretch during which (NASDAQ:AMZN) became the world’s cloud-computing leader … a business the e-commerce giant arguably had no business getting into. During the same eight years, Nvidia (NASDAQ:NVDA) became a go-to provider of artificial intelligence hardware, a business it practically stumbled into, at first.

In both sectors,  IBM could have made a big dent. Instead, it put out more more-of-the-same mainframes, and a Watson AI platform that hasn’t always been impressive. Indeed, Watson has been frequently criticized as not being “real” artificial intelligence.

Rometty didn’t program the AI algorithms that Watson utilizes, nor did she assemble the hardware that runs it.

She absolutely could have pushed the company in different directions, though.

International Business Machines Is Out of Touch

The balance between the experience that tends to come with age and the understanding of “new” that tends to come with youth is a tricky one. Both are needed in the workplace, though how much of each is needed can vary as time passes.

Perhaps those critics who argue the 62-year-old Rometty isn’t quite plugged into the pulse of the tech world have a valid point.

Meanwhile,asWill Ashworth pointed out last month, the average age of IBM’s board members is 64.

The internet didn’t even become popularized until more than a decade after they graduated from college. Cloud computing didn’t proliferate until more than a couple of decades after they graduated from college. Smartphones weren’t widely popular until nearly three decades after they got out of college.

That’s not to suggest that anyone over the age of 30 can’t learn about newer technologies. They can, and do.

But the internet and cloud computing are now the centerpieces of how we live our lives,  centerpieces that  most people under the age of 30 don’t remember living without. It’s a cultural component that a group of people in their 60s  can never fully understand.

Consequently, it’s likely this group of older adults — the Board of Directors and Rometty — are guilty of collectively misunderstanding the tech world and today’s companies, and then supporting one another’s misunderstandings.

There’s also a decent-sized chance that Rometty’s 38 years with IBM are more of a liability than a benefit. After almost four decades of absorbing the same corporate culture,  bad habits and a misguided vision of the future become extremely ingrained.

Whatever the case, the argument that IBM’s leadership isn’t getting the job done holds water.

The Bottom Line on IBM Stock

That argument is just food for thought for the owners of IBM stock, and it’s certainly not the first time the idea has been floated. It’s worth floating again, however, because the market seems to perpetually avoid  a serious discussion of Rometty’s tepid results.

Or, voiced in different terms, IBM may be doing the same thing over and over again and expecting a different result, which is, of course, the unofficial definition of insanity .

On Oct. 25, Rometty will celebrate the eighth anniversary of her hiring as CEO. Perhaps that milestone will prompt some scrutiny and pressure from the key owners of International Business Machines stock .

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website, or follow him on Twitter, at @jbrumley.

Article printed from InvestorPlace Media,

©2020 InvestorPlace Media, LLC