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Verizon and IBM Report Less Than Stellar Earnings

By Jack Kramer and Nick Martell - Jan 22, 2014 at 6:00AM

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Good morning, good lookin'. Here are the two things you need to know on Jan. 22.

Forgot to wear your Beans Boots to work yesterday? You're one cold-footed unhappy camper. (Tom Brady should have plenty of time now to sell you some Uggs.) The Dow Jones Industrial Average (^DJI 0.23%) dropped 44 points Wednesday after poor earnings from big boys Johnson & Johnson, Verizon (VZ 1.17%), and IBM (IBM 0.64%). But traders were just looking to beat the snow.

1. IBM gets burned by poor server sales
It was all about IBM after big news that it's selling the servers business to China's Lenovo Group and a fourth-quarter earnings report. That's a lot of financial gigabytes for Wall Street to chew. After the Lenovo news, IBM stock fell 1%. After the earnings report, it's down another 2.6% in after-hours trading. What's happening to "Big Blue"? 

First IBM quit calculators, and then it sold its "ThinkPad" PC business to China's surging tech power Lenovo in 2005. Now Lenovo's back for more Blue. According to reports, Lenovo is bullish on the computer hardware market and is in talks to buy IBM's server business.  

The fourth quarter was the biggest revenue drop in four years, and it's all hardware's fault. IBM's sales of computer hardware to clients continues to plummet (why does Lenovo keep buying IBM's worst performing businesses?), down 27%.

Profits actually gained despite the fall in sales. But Wall Street is noticing that consumers are abandoning IBM hardware. We're all floating up into cloud data (especially in the Bay Area), and we're not even buying software; we're renting it. IBM is being outraced by technology, and it's focusing on software and services to try to catch up.

2. Verizon reports higher earnings
Can you hear me now, Verizon? The big red wireless giant Verizon released earnings Tuesday that topped analysts' expectations with wider profit margins (even though they can't even load your ESPN updates in a timely manner). The average consumer is paying 7% more than last year, and that's not bad.

So why did the stock fall more than 1%? Competition, baby. In TV land, Verizon's Fiber Optics option is seeing slowing sales to big cable deals. And in phone world, AT&T, Sprint, and T-Mobile are out to beat Goliath as well.

What's new at Verizon? It gave some details that its $135 billion deal to buy the remaining 45% of Vodafone's wireless unit closes in February. It also is paying $200 million to Intel for a TV box that would let anyone with an Internet connection watch live TV. The problem? A bunch of other companies have tried this ... with nada success.
  • Fourth-quarter earnings from Coach and eBay
As originally published on 
There's a huge difference between a good stock ...
... and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributors Jack Kramer and Nick Martell have no position in any stocks mentioned. The Motley Fool recommends Coach, eBay, Intel, Johnson & Johnson, and Vodafone and owns shares of Coach, eBay, Intel, IBM, and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$32,803.47 (0.23%) $76.65
International Business Machines Corporation Stock Quote
International Business Machines Corporation
$132.48 (0.64%) $0.84
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$44.95 (1.17%) $0.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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