Lioness Associates, Inc.

Economic & Corporate Risk/Yield Reports

October 16, 2012  -- IBM Risk/Yield for 2012

Refer to Reading Graphs for information on interpretation of the graphs.

The graphs for IBM appear challenging at first glance and require a closer look at the underlying configurations in more detail.  The underlying configurations coincide with a major cycle that occurs every few decades and since IBM has been in business for decades, it has gone through a few of these cycles and survived. This particular configuration indicates that strategic shifts are going to be occurring in corporate goals (and products).  Previous announcements from IBM indicate that they plan a shift to provide software services to "smaller business owners".   This is similar to the shift decades ago of expanding from mainframes to providing PCs to the "consumer market".  While IBM did not stay in that particular market to the current day, they were strategic in setting up the standards and forming what would be the basics of PC functionality.  I expect that the same may be true in this case with IBM's decision to move into cloud software for smaller business — while it may be profitable in the next few years, the short term will have pitfalls until the right products and presentations are determined and as a result, earnings might be impacted.

In this case, maybe IBM could take a lesson from both Apple and Amazon and set up a "business apps" store — IBM can set up an application framework and developers, both IBM and non-IBM, could develop applications to load into the store. 

Just a thought — decades ago IBM developed hardware that allowed non-proprietary devices and software to run on it, can they do the same today with software and would they want to?

Decisions IBM makes now will have an impact for years - wise investors will watch for clues.


Disclosure as of 10/16/2012 - IBM (IBM) is not part of our portfolio at this time.