Legendary investor scoffs IBM stake, nibble by nibble
Buffett makes first real bet on the tech sector
Posted in Management, 14th November 2011 17:16 GMT
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Super-investor Warren Buffett's Berkshire Hathaway biz has revealed that he has spent most of this year buying up a 5.5 per cent share in IBM.
The "Oracle of Omaha" said Berkshire had bought $10.7bn of IBM's stock to take a stake that makes it, along with State Street Global Advisors, one of the largest investors in the company.
Buffett traditionally stays away from stakes in technology firms because he doesn't understand them, but said IBM was different.
"It's a company that helps IT departments do their job better. It is a big deal for a big company to change auditors, change law firms, [or change IT support]," Buffett said in a CNBC interview in the US.
He also said that IBM didn't know his company was building a stake in it and would be finding out from the TV show like everyone else.
Berkshire started buying Big Blue shares back in March with a view to secure $10bn worth of stock.
An IBM spokesperson could not be reached for comment at the time of publication. ®
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COMMENTS
Another perspective/option/derivative/hedge position
mikelivingstone [said]…… on http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/electronics/8889215/Warren-Buffett-breaks-the-habit-of-a-lifetime-and-bets-big-on-IBM.html
"I smell a rat. Buffet has already bought the shares, and the IBM share price is riding high having made savage cuts to minimise costs ahead of Mr Palmisano's departure - he desperately wanted to get $200 a share. Word from IBMers I know is that cuts have gone too far and the company is now incapable of delivering new profitable revenue growth. The Earning per share illusion is purely one of buy backs and driving cost out faster than business is being lost due to the cuts. This isn't sustainable in the long term, and the Buffet story feels like one last attempt to get retail investors in to plump up the price to $200.
My betting is the IBM share price will tank in the next financial year and will be a good one to short."
amanfromMars [replied]
I am inclined to wholeheartedly agree with you, mikelivingstone. IBM as it presently is, has no future growth potential and only a stagnant and moribund market position in a sector which has taken off and explores the unbounded opportunities which virtual systems deliver in Cloud and CyberSpace Applications Programs, which require nothing from or on license to Big Blue.
Warren is trying that tired old dollar/fiat currency methodology of getting some old buffer to throw money at something to try and fool ignorant folk into thinking it is valuable and worth more than it is and greater than practically nothing whenever technology and methodologies move on into more exciting and productive and creative and lucrative fields.
Hell, Warren is a old railroad man, and here we are now nowadays probing Mars with incredibly sophisticated computerised machines. What do you think that tells you about everything. He's a crutch for IBM and it is probably government money he's wasting anyway rather than any of his own. As was said and is known by all, Warren doesn't do technology he doesn't understand, and he's far too old a dog to have been taught any new tricks, that's for sure.
The whole thing is a markets trick ...... and aint that just typical of the games they play to keep the Great Wall Street Ponzi alive and pumping its Zombie Virus and American Dream Stream Meme.
Hey Dudes, Time for a New Illuminating Script without Judas and Doubting Thomas queering your Pitch and Patches.
He understands
He presumably understands that IBM is managed as a business, and not as an engineering shop like many other IT companies. He understands what Gerstner and Palmisano have done, which is all about executing a business model. As Palmisano once said, you don't need an engineering degree to understand the business model.
He needs to do nowt to increase his stake
Given that IBM has declared that they will be spending a lot of $$$ buying their shares back to increase shareholder value.
Less shares on the open market means that his 5.5% stake is getting bigger.
As far a buffet's philosophy goes... Buffet doesn't demand either way. He just invests and sits - (almost) never interferes with execution. (There have been odd exceptions over the years but otherwise he is a more copybook kindov "investor").
On the question of should Big Blue breakup into tiny blue balls ? How - one would ask ? It's an IT services giant which at times peddles its own hardware/software. It already amputated the sore PC division. Its software and hardware pieces are simply captive manufacturing, sitting pretty behind the services umbrella. Those pieces are high margin internally... but simply wouldn't survive outside the umbrella and no one would buy those divisions, even if IBM wanted to sell them. So those fears of 90s when IBM was still peddling boxes of various sizes is no longer relevant. The new scare should be - will IBM cut its cost so much that it stops being effective ? That's the biggest risk IBM runs, if it continues to outsource to low cost geographies like it did in last 5 years. Investors demand profit margins and services business offers only so much in terms of increase in efficiency... but as history has witnessed that continuous cost cutting never works out in the long run.
Good News
He will not be demanding that the company be broken up in order to create more value for the shareholders.
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