It’s all about the cash flow!!! Wall Street has voted thumbs down on Ginni’s public plan so far. That doesn't Mean they don't Think it will succeed, BUT they think Ginni and the current management team will not pull it off. Wall Street is putting zero uplift on the “strategic” IBM forward earnings. Essentially they are saying 12 dollars times 8.5 is all she is worth and that includes the new Redhat portion of IBM as well as the legacy systems. (the current bear market may push this lower) IBM needs to decide what it wants to be when it grows up, and how does it extract value out of that going forward. Given that Warren Buffet is a notorious long term investor, I’m sure he asked the current management team that exact question when he questioned them 4 years in, and they came back with a big fat DUH. There are several paths forward, Split IBM into legacy/ strategic farming the IP while embracing the as a service model, continue on like they are, sell legacy portions off and embrace the strategic, etc etc. IBM shareholders may be able to capture a one time infusion of cash for the legacy portion if they sell it off, BUT the cash flow that is associated with the legacy is also divorced when that transaction takes place. Could IBM negotiate an ongoing mining of the legacy. (think revenue stream) MAYBE, but Ginni has snatched defeat from the jaws of victory several times now as she has given the Legacy away at fire sale prices with OTC sales. (just look at GF and the HCL deals). THUS Wall Street has put a fire sale OTC cash infusion on the legacy portion of the business. (say 20 billion for Legacy services and HW division). Wall Street has zero faith in this management team, so they can’t put a value on the “strategic” portion of IBM going forward. As such they value the “stategic” portion at the same valuation of the current entire IBM. THUS the equation goes like this. 12 bucks - the legacy cash inflow as a OTC (figure approx 20 billion) = 9 bucks times 8.5 = 75-85 bucks. That’s not a pretty picture going forward, BUT it is what Wall Street thinks of the current management team. Can things change??? SURE, but that means Wall Street has to gain some faith in the strategy going forward before they will put a multiple on the “new” strategic IBM. Their faith will not come until IBM changes the management team, and the new team demonstrates a reason to have faith in them. It’s going to be a long slow ride with many up’s and downs until growth returns. Hopefully the board can figure out how to get value and growth back into the equation quickly!!! To do that, they (I believe) have to change management horses and that can’t come fast enough.
Completely agree with every word of this post. @WM6T0Kz-1avc summed it up well.