Why IBM Is Behind Its Peers in the Technology Space
IBM Continues Acquisitions and Cloud Strategy Without Much Success (Part 2 of 14)
Falling revenues and growth continue to plague IBM
With a market cap of ~$160 billion, IBM (IBM) recorded revenues of $24.1 billion and $92.79 billion for 4Q14 and fiscal year 2014, respectively. Revenues in 4Q14 and fiscal year 2014 declined 11.94% and 5.94% on a year-over-year basis. All the operating segments, as well as the regions of IBM, recorded a decline in 4Q14. For 11 consecutive quarters, IBM’s revenue has been on a decline.
As a part of its strategy to become a cloud-based software and services company, IBM has divested some of its operations, including its x-86 servers, semiconductor operations, and customer care. IBM now aims to invest billions in its strategic imperatives, including cloud, big data, analytics, mobile, and security.
To gain diversified exposure to IBM, you can invest in the iShares US Technology ETF (IYW). IYW invests about 4.2% of its holdings in IBM.
IBM’s R&D expenditure is one of the lowest among its peers
Research and development (or R&D) is the backbone of the technology space, as it helps companies come up with innovative ideas and technologies that give them an edge over its peers. As the above presentation shows, IBM has invested approximately 6% of its annual revenue on development and research. If we compare this figure to its S&P 500 Index peers, it is even less than 50% of what they are investing.
Peers like Microsoft, Google (GOOG), Cisco (CSCO), and Oracle (ORCL) have on average spent approximately 13% of their revenues on R&D. According to Bloomberg and Capital IQ Research, in the technology industry, Microsoft’s $10.4 billion led the R&D space in 2013.
Among all the technology players mentioned in the above presentation, IBM is the only player whose contribution to R&D has decreased from 2013 to 2014.
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