The Dow Jones (^DJI 0.18%) index has surged more than 20% higher so far in 2013. It's a rare week when the Dow doesn't set a fresh all-time high nowadays, and the index jumped to another record high today.
But the Dow's rising tide is not lifting every boat in the dock. In particular, it's leaving one big, blue ship (chip?) behind. IBM (IBM 3.16%) shares are trading lower year to date. What's wrong with IBM this year?
First up, IBM is working under a brand-new CEO. Longtime leader Sam Palmisano retired at the very start of 2013, handing the reins over to his vice president of sales and marketing, Ginny Rometty. Having risen through the IBM ranks as head of consulting services, it's no surprise to see Rometty recast IBM in a more software- and service-focused mold.
But change is always difficult, and even perfectly executed changes of a long-term vision can hurt in the short term. In this case, the execution hasn't been perfect and IBM also ran into some headwinds out of its control. U.S. government orders have been soft due to sequestering and budget shutdowns, and an unexpected dry spell in China didn't help IBM's cause either.
The result: A company that hadn't missed an analyst earnings target since 2005 suddenly shanked three quarters in a row. To nobody's surprise, IBM's shares followed suit.
IBM's earnings are taking a break from their recent history of rapid growth, and top-line revenues are actually shrinking. The good news is, Rometty's IBM is actively choosing to drop low-margin contracts in favor of more profitable deals when possible. This tactic explains the flagging revenue trend, and also leads to stronger profit margins.
IBM Revenue (TTM) data by YCharts.
2013 was a mixed bag for IBM but a downright bummer for IBM shareholders. As Ginny Rometty's revamped strategy rolls out, it's fair to say that 2013 was a transitional year in Big Blue's century-plus history.
