Unless something magical happens between now and the end of the year, or oil stocks go into another tailspin, IBM is on track to be the worst performing stock in the Dow Jones Industrial Average two years running, writes Kevin Kingsbury in a column for the Wall Street Journal.
That hasn’t happened since, “now-departed Bethlehem Steel in 1995 and 1996,” Kingsbury points out:
IBM remains the DJIA’s worst performer of 2014 with a 13.5% drop — all of it since the Dow first closed above 17,000 on July 3 and equal to a 168-point ballast on the index since then. The index’s second-weakest stock this year has been Chevron Corp.CVX -0.36% with an 8.8% decline.
If you purchased IBM’s stock when CEO Ginni Rometty took office in January 2012, you’d be down 12%, he points out.
To be fair, Rometty didn’t cause the problem. She was handed the baton at the exact moment that tectonic plates shifted in the computer industry. Companies want to buy less technology. They want to rent it hosted by others (a practice known as cloud computing).
IBM didn’t exactly miss the cloud boat. It has some significant game up there with Amazon, Microsoft, and Google. But it’s taking time to catch up.
Meanwhile, time may be running out for Rometty to prove that her turnaround plan is solid, Kingsbury warns.
IBM finished 2014 with $US99.75 billion in revenue and $US48.51 gross profit. By anyone’s standards that’s a huge and profitable company. But it’s not going in the right direction. Annual revenues are down almost 7% over two years, and gross profit down 3%. IBM has missed earnings expectations several times in the last couple of years.
And in October, Rometty ditched a years-old promise made by her predecessor to hit $US20 earnings per share in 2015, known internally as Roadmap 2015. That promise was somewhat arbitrary, and didn’t make a lot of sense given current market realities. But the move sent shares into a tailspin from which they haven’t recovered.
Rometty is doing a lot of things right: spending billions to build out more data centres, launching new cloud business units, creating new partnerships with companies like Apple, Twitter, and SAP, and with partners in China like Tencent. She’s also selling shrinking units like commodity servers, even making the unusual deal to pay partner GlobalFoundaries $US1.5 billion to take over the money-losing chip making unit.
“If you look at what we’re investing in — and what we’re divesting — you can see a significant focus on high-value areas that are strategic to the company’s long-term growth. IBM is a very different company than it was when we started in 2014,” an IBM spokesperson told us.
But being the lowest-performing stock in the Dow for two years running is not a proud achievement. Investors could run out of patience soon if Rometty’s plans don’t pan out and change the company’s fortunes.