I keep an eye out for financial reports about IT companies. A recent article in the NYT that labeled IBM's continuing and large stock buybacks as stock-rigging caught my eye (see: The Truth Hidden by IBM’s Buybacks). Below is an excerpt from the article with details:
For the first several years of her tenure, [IBM's CEO has] managed to prop up the stock by buying back shares by the cartload. In the first six months of this year, the company spent more than $12 billion ...on its own shares....The company’s revenue hasn’t grown in years. Indeed, IBM’s revenue is about the same as it was in 2008. But all along, IBM has been buying up its own shares as if they were a hot item. Since 2000, IBM spent some $108 billion on its own shares, according to its most recent annual report. It also paid out $30 billion in dividends. To help finance this share-buying spree, IBM loaded up on debt. While the company spent $138 billion on its shares and dividend payments, it spent just $59 billion on its own business through capital expenditures and $32 billion on acquisitions....All of which is to say that IBM has arguably been spending its money on the wrong things: shareholders, rather than building its own business.“IBM’s financials make it self-evident that its stock-rigging strategy is not about value creation through ‘investment,’ ” David A. Stockman...wrote on his website earlier this year. “IBM is a buyback machine on steroids that has been a huge stock-market winner by virtue of massaging, medicating and manipulating” its earnings per share....Let’s be clear: IBM is not going out of business....The big question is whether the turnaround will be successful. Of course, there’s also the question of what IBM should have done with all that cash burning a hole in its pocket. Well, what about a major game-changing acquisition? ....There’s also a dirty secret about why some executives love stock buybacks: In certain instances, they can have an impact on executive compensation by goosing certain metrics that boards use to measure a company’s performance.
Earlier in my career decades ago, IBM was the dominant player in healthcare IT with its HIS software and, of course, its mainframe computers installed in all large hospitals. This was before the emergence of EHR software and the focus of the company was on hospital financials and what was called "patient management applications" by which was meant functions like admission, discharge, and transfer. Of course, since those days, the company has moved to the more profitable services component of IT. What I hear about IBM in relation to healthcare these days is mainly about Watson, its supercomputer, and the quest for some useful niche for it (see: IBM Watson's impressive healthcare analytics capabilities continue to evolve). Most such articles quote IBM executives about the future potential for Watson but usually scanty evidence about its utility in solving key day-to-day problems.
At any rate and through all of these corporate changes, the constant value of IBM stock has always seemed to be constant. If this article is accurate and the numbers seem to be solid, some of this value may have been the result of smoke-and-mirrors. Here what I think is the most important sentence in the above quote: While the company spent $138 billion on its shares and dividend payments, it spent just $59 billion on its own business through capital expenditures and $32 billion on acquisitions. I must say that I have never looked to IBM for innovation in healthcare IT. Perhaps this was the result of the relatively paltry amount of money the company has been on spending on its own business and on acquisitions.