It's a hardware company. It's a software company. It's a consulting company. No, it's IBM (NYSE:IBM)!
Big Blue reported results on Tuesday evening, and in this time of jitters over Intel (NASDAQ:INTC) and Yahoo! (NASDAQ:YHOO) earnings and euphoria over the likes of AMD (NYSE:AMD), IBM fell something short of heroic. Middle of the road was more like it.
Reported revenue dropped 12% in the fourth quarter, but the revenue drop was only on the order of 1% if you strip out the results of the PC business in the year-ago period. For those who don't know or have forgotten, IBM decided to get out of this business and sold it to China's Lenovo. As for the segments, revenue dropped 5% as reported, software was flat, and the hardware business fell 27% as reported and rose 6% excluding the PC revenue.
While margins in the software and services segments improved a bit, hardware margins did a lot better in the wake of scuttling the PC business. Overall gross margins improved more than five full percentage points, and the pre-tax margin was up more than four full points. Net income rose about 13%, and earnings per share, adjusted for charges and what not, beat the average estimate by a comfortable 19% on the heels of a declining share count.
I imagine that analyzing IBM is a bit daunting for the individual investor who has only a few hours a week to spend on careful due diligence. After all, how do you assess its competitive position with EMC (NYSE:EMC) in storage, or with Accenture (NYSE:ACN) in services? And then you have things like Microsoft (NASDAQ:MSFT) as both a competitor (in software) and a customer (in processors for the Xbox 360).
IBM has long been something of a default stock for investors who want exposure to technology and just figure that IBM is "good enough," not to mention in enough markets to be a reasonable proxy. Now, I'll side with the "good enough" idea -- after all, a nice, high return on invested capital is a good thing -- but I'm always wary of buying single company stocks as proxies for entire non-commodity sectors.
Be that as it may, IBM is the sort of stock that interests me only when it's beaten down and left for dead. There's really nothing wrong with the valuation or the company, but I just don't see enough opportunity here to tie myself down with Big Blue.
For more big ideas in tech land:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
