IBM is up big today because of a share buyback and dividend increase. “I can’t figure out how to grow the business and spend all this money. Just tell the accountants get rid of it” grumbled Sam Palmisano in his sleep. It’s been a fun week to follow IBM. There are some great articles out… I’ll start with the most recent.

Martin Sosnoff writes an oped for forbes and does a solid nuts and bolts financial analysis of the company. He compares IBM with both Google and McDonald’s (Its market cap is the same as Google’s but it’s growing more like McDonalds. IBM’s $9B earnings are up slightly, Google $3B are on pace to double this next year!) Sosnoff takes issue with underspending on acquisitions (?), underspending on research, nefarious share buy-backs (Share buybacks favor management by enhancing the value of their options), Palmisano being full of himself and IBM being boring / risk-averse / conservative.

If you buy back stock aggressively, shareholder equity declines symmetrically. But, so what? We need to know what management considers an optimal capital structure. Why not consider a major acquisition that’s truly transforming rather than a cosmetic add-on? After all, IBM’s long-term debt stands at $14.2 billion, with an equity base of $27.8 billion.

and later…

To excite Wall Street, it needs to keep raising its dividend and go into hock releveraging the balance sheet to increase its capacity for share buybacks. Can IBM do a major deal? Yes, but I’d be surprised if it happened.

To tie in neatly to this comes one from James Governor of Redmonk.com. He does a great job covering IBM and his idea strikes me as brilliant. He argues that IBM is too risk-averse (sound familiar), out of touch with end-consumers and largely absent the core of the Internet. He proposes buying Amazon.com. Wow!

Governor is more bullish on IBM than Sosnoff, but echos many of the same themes. Governor asks: Is it really off limits for IBM to buy into retail anyway? If IBM can buy a share in a Chinese bank, as it recently did, its clearly time to rethink what IBM is, and what risks it is prepared to take. You really have to read the post to understand how great that would be.

Amazon is emerging as a major software-as-a-service player. Loads of small businesses use Amazon’s platform for selling books and everything else. Grassroots developers don’t see IBM as a potential supplier but several high-profile success stories glow about Amazon. He combats “can’t compete with customers” argument (Borders example) and really got me dreaming about what IBM could be. One of the commenter mentioned buying MySQL as well. That would fit so nicely with the “new” IBM.
Maybe it’s feature creep for them but I’d love it. I just wish it were true.

It isn’t.

It won’t happen.

Bezos loves having his face on magazines. When was the last time you saw an IBM moviestar? OK, other than Bob Hoey? Bezos would take on a man of the people / savior-rescuing-his-company-from-the-big-bad-business-people role. IBM is likely too proud to act on a lone analyst’s recommendation to boot, but man would I love following this company. I don’t know if a company like IBM is too proud to act on a lone analyst’s recommendation, but as a shareholder I hope they do.

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