Thursday, February 27, 2014

IBM Adjusts Its Portfolio Amid Shrinking Revenues

 This article was originally published by GuruFocus

By Sarfaraz A. Khan, Research Assistant: Gohar Yousuf
February 27, 2014

About nine years ago, IBM (IBM) and the Chinese tech giant Lenovo Group (LNVGY) captured global headlines when the Asian company purchased IBM’s PC business. The two are now back together on the negotiating table as IBM moves away from lower-margin businesses while it increases its focus on cloud computing.

IBM’s focus on the higher margin areas is a positive sign for the long term. However, the business is plagued with shrinking revenues as its growth in the new areas (such as cloud) has not been able to offset the declines coming from its old businesses (such as hardware).
Despite its woes, the Big Blue is backed by the legendary investor Warren Buffett who owns 6.3% of the firm and has been optimistic about its future.

An investment in IBM is a bet that the company will be able to turn itself around and as it does, it will emerge as a more profitable firm. Its shares are currently trading at $183.70, which implies a price-to-earnings ratio of just 12.12, making them considerably cheaper as compared to other players in the industry.

Hardware Divestment

IBM has finally agreed to to sell its low-end server business to Lenovo for $2.3 billion. This would be a big step for IBM that has been trying to shift its focus from the declining hardware business to the lucrative ... read full article at GuruFocus