WHAT WILL WE MAKE OF THIS MOMENT BLYTH TECHNOLOGY GROUP Chad Mitchell, Luke Chen, Paa Adu, Udai Baisiwala, and Wayne Shu
Recent Performance A Guide to the Counterattack ● 11 consecutive quarters of declining revenue ● Over 10% decline in stock price over 1 year period ● Buybacks signal a lack of belief in the organic growth strategy ● History is not a good indicator of future performance
Investment Thesis Bearish sentiment towards IBM undervalues its self- renewal process rooted in a history of successful turnarounds. Profits in high growth areas and key partnerships with leading companies signal that Big Blue offers an opportunity for a long-term investment play
Company Overview Ticker: IBM Current Price: $164.83 Market Cap: $163.35 billion 52-week range: 149.52 - 199.21 Dividend Yield: 2.69% ($4.40 ann.)
History of IBM Resurgence ● Ability to reorganize itself ○ Divest from low-margin ○ Enter high growth - high margin ○ Commitment to long-term strategy ● Legacy of Innovation and unique position in the market ○ Wide customer base and integrated framework ○ Patents (Number 1 U.S. patent holder for 22 years) ○ Long-term product strategy - Watson, dedication to areas that can expand tremendously
Core Business Structure ● IBM known for its variety of computer products and services. 3 main focus areas divided into 5 formal sectors: ○ Services(Global Business Services, Global Technology Services): $54.9 billion ○ Software: $25.4 billion ○ Hardware and Financing(Systems & Technology): $12.0 billion ● Maintains position in hardware through manufacturing of mainframe computers (z13), $3 billion R&D in advanced silicon microprocessors. ● Strategic imperatives play off of IBM’s infrastructure and technical background to bring IBM to the next level (Cloud, Security, Analytics, Mobile).
Structure of the Business
High Growth Opportunities ● Cloud ○ 60% growth on $7B in revenue ○ Leader in hybrid, private cloud ○ Soft Layer is leader for bare metal cloud ● Analytics ○ 7% growth on $17B in revenue ○ Flash: real-time analysis ○ Watson capacities ○ Mine structured, unstructured data ● Security ○ 19% growth on <$1B in revenue ○ Used by 7/10 top US banks ○ 25 security labs ● Systems of Engagement (Social, Mobile) ○ >200% growth on <$1B in revenue ○ Client Collaboration, IBM Connections
Partnerships
Apple ○ IBM and Apple will work on mobile enterprise apps catering towards various sectors such as retail, finance, and healthcare ○ IBM to optimize cloud-based services for IOS Twitter ○ Integration of Twitter data with IBM data analytics services on the cloud to provide more comprehensive data-driven business solutions
SAP ○ SAP’s cloud business applications being run on IBM’s cloud ○ IBM is a mature, trusted brand for non-US companies Tencent ○ Largest internet company in China partnering with IBM ○ IBM has been building data centers in China since 2011 ○ Has previous relationship with Chinese through Lenovo deals
Management Team Ginni Rometty has years of experience within IBM. ● Started 1981 ● Has seen how 1993 turnaround happened ● Enthusiasm for technology Management committed to long-term thinking. ● IBM research still by far leading in patents. ● Committed to acing enterprise solutions ● Culture and history of long-term thinking and success through change ● Warren Buffett is largest shareholder
DCF
Recommendation • Time horizon: 12-18 months • Price target: $215 • Sell if: Combination of slowing momentum in growth areas and persisting decline in revenue
“Nobody ever got fired for choosing IBM” Questions?
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