The by-line says it all: "More than 7% drop marks worst day in five years"
https://www.marketwatch.com/story/ibms-stock-falls-to-early-2016-levels-as-investors-show-impatience-with-turnaround-2018-10-17
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Moffett Nathanson analyst Lisa Ellis, who has a sell rating and a $140 price target on IBM, said the
company has an “anchor” problem, when it comes to its transformation. While cloud and AI are the
future and the way to go, they’re not growing fast enough to fill the void of legacy tech.
“IBM still has ~40% of revenues in areas of Enterprise IT that are in long-term structural decline – areas
including on-premise software, datacenter outsourcing, and hardware support,” Ellis said in a note.
“While IBM may be able to slow the declines in these businesses, they can’t be reversed – those
segments of the industry will, over time, go away. Worse still – these businesses are highly profitable,
contributing an estimated ~50% of IBM’s profits.”
Katri said he thinks IBM will only start generating a significant return to shareholders if the company
undertakes “the difficult path of aggressively terminating/restructuring underperforming units, hence,
sacrificing top-line growth for generating margin/FCF improvements.”
“As is, IBM’s portfolio of commoditized, legacy “tech” products and services will continue to cap the
performance of the entire operation,” Katri said.
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Focus on this verbiage -- "those segments of the industry will, over time, go away" and ". . .aggressively terminating/restructuring underperforming units. . ."