IBM has long been a poster boy for the untoward effects of central bank financial repression. For most of this century the once and faded king of tech has been in a modality of slow liquidation, leveraging up its balance sheet with cheap debt to fund stock buybacks, dividends and accounting-driven two-bit M&A deals. This morning that destructive strategy—–pursued by two incompetent CEOs in a row—–came to a thundering crash. IBM is now down by 7% and deserves to go far lower.
Perhaps even the robo-traders have had enough—–given that IBM reported its 10th straight quarter of negative revenue growth, a $4.7 billion write-down of its chips business and a huge 12% miss on even the street’s phony “ex-items” earnings number. But the canary in Big Blue’s mainframe was undoubtedly one simple thing, as Zero Hedge cogently noted:
“…..the buyback “strategy” finally hit a brick wall.”
After repurchasing an average of $6 billion shares during each of the past three quarters, buybacks dropped to only $1.7 billion in Q3. And the latter marked the lowest anualized repurchase rate since 2009. Likewise, for the first time in 10 quarters IBM’s net debt also stopped growing.
But the dismal charts above are only the most recent manifestation of IBM’s self-liquidation. During the 31 quarters since the end of 2006, IBM has spent $111 billion on share buybacks and another $23 billion on dividends. And it goes without saying that this staggering total of $134 billion, which was pumped into the coffers of the fast money traders who rent Big Blues shares and the mutual fund and institutional investors who index them, did accomplish wonders for its stock price. The latter vaulted in nearly a perfect chart climb from $100 to $200 per share before it recent slide.