The IT industry can be highly unpredictable, where a single groundbreaking technology can put an end to the business of a number of companies. Although the industry has grown and changed exponentially, IBM has remained successful at all stages.
Current and Prospective Financial Performance of IBM
IBM has exhibited commendable financial performance in the past, and the earnings are also expected to rise in the prospective financial periods. For the fourth quarter of 2012, IBM reported revenues of $29 billion and a profit margin of 19.91%. The extent of profit margin suggests that the company has a lot of potential for prospective earnings.
Last year, IBM spent $3.8 billion on dividends, and $10.5 billion on buybacks. Although shareholders were happy with the extent of dividends paid by the company, had the company distributed all of its earnings instead of spending on buybacks, the effective yield would have increased to 6% from 1.6%.
The extent to which IBM has been reinvesting its earnings in the business shows that the company intends to grow even further in the prospective period. These factors exhibit the strength of the company’s financial performance, and the potential for further growth. It can be said with sufficient level of certainty that IBM will continue to earn high profits in the foreseeable future due to its stable business portfolio and strong market position.
Growth in IBM’s Business
IBM has disclosed plans for numerous acquisitions in an attempt to strengthen its business portfolio. Some of the entities that IBM has acquired or plans to acquire are: Star Analytics Inc., Texas Memory Systems, Kenexa Corporation and Butterfly Software Ltd. All these entities operate in specialized segments, and by acquiring these companies IBM can strengthen the respective segments in its business.
Apart from the acquisitions, IBM has also launched newer research facilities globally. The latest addition to the company’s facilities was in Nairobi, Kenya. These facilities allow IBM to utilize the expertise of professionals worldwide to develop newer and better technologies.
IBM and Competitors
The main competitors of IBM are: Hewlett-Packard Company (NYSE:HPQ) and Microsoft Corp. (NASDAQ:MSFT). HP directly competes with IBM due to overlapping businesses. HP also provides IT related products, and software solutions to individual consumers and businesses and also holds an important position in provision of services like enterprise services and storage and networking. The profit margin of HP for the fourth quarter of 2012 was 4.34% which is significantly lower than IBM’s 19.91%.
Microsoft is also among the competitors of IBM as Microsoft also produces and sells hardware to its customers. Although Microsoft is known for its operating systems for personal computers, the company has paced up its efforts to join the ranks among the leading hardware producers in the industry. The latest example is Microsoft’s Surface which is a tablet featuring Windows 8 operating system and it is in direct competition with other leading tablets in the market. Microsoft’s profit margin for the fourth quarter of 2012 was 29.72% which is significantly higher than both IBM and HP.
IBM’s Market Performance
The market performance of the company has remained highly volatile in the past months. There have been several highs and lows. The shares of the company are currently being traded within the range of $210.11 and $213; however, the 52-week range of the company has been between $181.85 and $215.90. The following chart represents the company’s market performance over the past year.
The chart indicates several steep declines and inclines in the share price of the company over the past year. However, a steep incline can be observed towards the end.
After the analysis of relevant factors, investors should buy the shares in the company. IBM has a very strong financial performance and the expectations regarding the company’s prospective financial performance are also high. Apart from that, the company is a stable investment in the long term with steady payment of dividends.