From all appearances, IBM (NYSE:IBM) is a very interesting company to invest in, to say the least. It is definitely looking at a lot of challenges. In the past quarter, IBM’s total revenues fell by 12% on a year-over-year basis. While this still translates to $24.1 billion, it highlights dramatic changes in the industries IBM operates in. Its software revenue, for example, has dropped by 7% to $7.6 billion. While this is troubling, a more worrisome trend is in its global technology services sector.
You have to remember that IBM has changed its global business mix from being a hardware developer and manufacturer to more of a software and service provider. Even on this front, Microsoft is showing quite a bit of weakness. Software revenues dropped along with an 8% decline in global technology services.
Given these dismal numbers, it might seem that IBM is going to be down for the count. It appears that its markets are changing dramatically, and IBM has been caught flat-footed. It is natural to run away from the stock as much as possible until it gets its act together.
The good news is that IBM might be a great buy in the near future. It has already dropped in price quite a bit over the past 12 months. Its stock price has declined by around 14%. Given its current fortunes, it still has a long way to go in terms of stock slippage.
With that said, considering its focus on cloud-computing software and software services, it might be an attractive buy in the future. The key factor to look at is how strong Microsoft’s (NASDAQ:MSFT) restructuring would be. If it completely divests itself of customer support and the last vestiges of its hardware business, it might have a fighting chance.
The reason why it needs to get rid of all these old divisions is that they are lower-margin businesses. Did they make money? Sure. But the margins aren’t enough to justify IBM’s stock price. There are more lucrative sectors in its total business portfolio. By focusing on these higher-margin areas, IBM can reposition itself for greater profitability in the future. Expect more share price drops in the future. Once you see some key milestones in its restructuring plan, that may be the time to buy.