Not a bad performance, after all…
Ironically, the pioneer in technology today stands dwarfed in terms of market capitalization by newer entrants like Apple, Google, Amazon, Facebook and Microsoft. In the last 1 year, the stock has lost 16%. Since 1979, IBM has given an overall return of 1700% against the Dow Jones Index return of 6000%. That shows why the company has failed to capture the imagination of investors in the last 3 decades.
O/S and Mainframes…
Critics point out that IBM has not been at the forefront of any of the key critical trends in the last 30 years. Be it decentralized computing, internet, search engines, mobile operating systems, cloud, analytics or social media; IBM has been a follower than the creator of a trend. Additionally, two of its biggest sources of business were overtaken by competition.
First the IBM operating system lost out to the Microsoft Windows as IBM failed to see the massive potential of stand-alone PCs. Secondly, its core business of mainframes took a big hit as companies reduced their investments in servers and started adopting the cloud for storage and computing. The PC business, of course, was ironically sold out to Lenovo, a Chinese company. That probably sums up the reasons why IBM has lagged competition since 1980.
But elephants can dance…
What should still fascinate an investor, probably, is that it is the only technology company to have survived a century. IBM has lived through the Great Depression, the New Deal, Oil Embargo, 2 world wars, a cold war, technology slump and the Recession of 2008. Through all this it has emerged stronger and sounder.
It would also be wrong to believe that IBM has not been in tune with the latest trends. Agreed that IBM has not pioneered key trends in the past 30 years but it has managed to scale up quite rapidly. For example, last year IBM earned $7 billion through Cloud and that is at par with the biggest in the business. Similarly, it continues to be a critical player in software for mobile security and analytics.
Just look at the returns…
The proof of the pudding lies in the eating. An investment of $47 in IBM in 1915 would be worth $1.6 million today. That is a 3.4 million % return or an annual CAGR of 11% over 100 years. That is commendable and consistent returns by any barometer.
Moreover, IBM is a consistent dividend payer and has not skipped a quarter in the last 100 years. With its ability to reboot and rediscover itself time and again, IBM has a lot to celebrate! ©