Alhambra Investment Partners

About the Author Alhambra Investment Partners

At Alhambra we begin with the belief that you are unique. And since unique situations require unique solutions the first step is to listen to you. There is no one-size-fits-all investment plan, so before we invest the first dollar we get to know you, your goals and your dreams. Next we compare your specific needs and requirements to determine whether active or passive investing is right for you and whether your plan should be strategic or tactical or both. Finally, we take our analysis and engineer a custom investment portfolio that matches who you. Alhambra investment decisions are based on our own extensive research and expertise. Our research staff has almost 100 years of combined market experience. The team drills deep into corporate data to find the smallest details that others miss, looking for true opportunity for our clients. The members of our team are highly respected in the financial industry and their insights are sought after by television business networks and radio programs. Their opinions and commentary are also widely quoted in financial publications as well as a multitude of internet outlets such as RealClearMarkets.com.

International Business Machines Corp. (IBM): It Will Restart All over Again in the Small Things

by Jeffrey P. Snider

Six months ago back in October, International Business Machines Corp. (NYSE:IBM) reported what seemed to be encouraging results. Though revenues at the company were down for the eighteenth consecutive quarter, they were so by the slimmest of margins, just -0.3%. For Big Blue, that had been the best revenue comparison since the first quarter of 2012 back when global recovery was the most plausible. The positive momentum was attributed to the company’s shift toward the new growth model, cloud, SAAS, and other next step technologies in lieu of IBM’s traditional hardware products.

By this point after going on so long, it is clear that a lot of interest in the company’s circumstances is pure morbid curiosity, the sort of macabre entertainment you might get from watching a train wreck in ultra-slow motion. But that isn’t the whole story, there is a bellwether in there still and it tracks pretty closely at least the direction of the global economy if not always its intensity (though I believe even by that parameter IBM’s results aren’t that far off).

The worst quarter in terms of revenue was Q3 2015 and the storm of “global turmoil” that in (statistical) hindsight was a surefire downturn both in the US and almost everywhere else. Throughout last year, IBM’s revenue like the economy as a whole improved, which is to say that it stopped getting worse. Like “reflation”, it was merely extrapolated that lower negative growth rates and even some positive ones meant the malaise was done and the world turned over (positive, for once). The “rate hikes” at the end of 2016 and toward the start of 2017 confirmed, for the mainstream, this had to be the case.

For IBM, at least, it hasn’t turned out that way. Rather than turning positive in Q4 2016 in the straight line extrapolation of improvement, the company reported declining revenue again and at a slightly faster rate. The quarterly figure of -1.4% wasn’t a huge decline by any means, but it was certainly the wrong direction against expectations. The latest quarterly results released yesterday only furthered the opposite case that much more. Revenues that were thought verging on breakout are now half a year with none to be found; actual revenue was just $18.2 billion in Q1 2017, down 2.8% year-over-year and the lowest for Big Blue in a good long time.

Many will be quick to dismiss these results yet again as just IBM being IBM; the standard for 21st century tech dinosaurs being left behind by the next new age. As with most things, there is truth to the indictment. But, again, the revenue history for this particularly company is uncomfortably close to matching the shifting trajectory of the global economy which by 2007 standards at least would have been wholly unsurprising. Their products are sold all over the world and as true capex are quite sensitive to macro changes whether idiosyncratic to whatever country, monetary conditions, or the global economy that follows the money.

If you think IBM means nothing more than its own success or failure, obviously none of this will matter. On the other hand, if there remains even the slightest relationship to the marginal macro environment, the past six months have to be concerning in a way that doesn’t bode well for “reflation” and everything thereafter. We already know (too) well that nothing has really changed, but so far outside of the auto sector while there isn’t exactly growth taking place there isn’t further contraction, either. Unless something somewhere actually does change in a meaningful way (not very likely) we are just patiently waiting for the next downward “cycle.” And it will start small so that it can be characterized afterward as “unexpected.”