4 ms·

There is another way of looking at this. IBM isn't what it used to be, it is essentially a consulting company rather than an R&D powerhouse. Investors are not p

by dtwest 6y ago

There is another way of looking at this. IBM isn't what it used to be, it is essentially a consulting company rather than an R&D powerhouse. Investors are not particularly excited about its growth prospects and do not think it should invest a bunch of money to grow. It may be more efficient for the economy as a whole for IBM to distribute its profits so that money could be allocated to companies where growth makes more sense. What you are suggesting is that every company should prioritize growth by reinvesting in itself. It doesn't always make sense to do so though.

Bombthecat 6y ago
I wouldn't call them consulting. More along the way of Hays. They have staff. But it seems like it's not enough. And they don't hire...
littlestymaar 6y ago
It didn't become so by magic though: IBM used to be a R&D giant, and they have been moving away from it for the aforementioned reasons. You are rewriting the story backward when you say “IBM doesn't do R&D then it makes sense to reallocate the profits”, it's the reallocation which killed the R&D!
- dtwest 6y ago
  I am replying to a comment which stated: > But in the past few years they have started committing to "returning 100% of free cash flow to investors" I was not commenting on IBM's long term history. They made short sighted decisions, I think everyone can see that. As it stands now, investors don't want to give them any more money to continue along that path. Companies like Amazon reinvest in themselves with no dividend. Investors encourage this because they believe in what Amazon is investing in. Just wanted to provide a different perspective on why dividends/distributions are desired by investors in certain scenarios. A common view on here is that Wall Street is ruining things, but it is often a much more nuanced situation.
- nostrademons 6y ago
  Is it really? My recollection is that IBM was already not an R&D powerhouse when the IBM PC came out in 1981, hence them building it out of commodity supplies and outsourcing the OS to Microsoft. As late as 2011 (20 years after IBM's transformation into a services company), the dividend yield was 1.5%, rather than the current 5%.

by dtwest 6y ago

Bombthecat 6y ago

I wouldn't call them consulting. More along the way of Hays. They have staff. But it seems like it's not enough. And they don't hire...

littlestymaar 6y ago

It didn't become so by magic though: IBM used to be a R&D giant, and they have been moving away from it for the aforementioned reasons. You are rewriting the story backward when you say “IBM doesn't do R&D then it makes sense to reallocate the profits”, it's the reallocation which killed the R&D!

dtwest 6y ago
I am replying to a comment which stated: > But in the past few years they have started committing to "returning 100% of free cash flow to investors" I was not commenting on IBM's long term history. They made short sighted decisions, I think everyone can see that. As it stands now, investors don't want to give them any more money to continue along that path. Companies like Amazon reinvest in themselves with no dividend. Investors encourage this because they believe in what Amazon is investing in. Just wanted to provide a different perspective on why dividends/distributions are desired by investors in certain scenarios. A common view on here is that Wall Street is ruining things, but it is often a much more nuanced situation.
nostrademons 6y ago
Is it really? My recollection is that IBM was already not an R&D powerhouse when the IBM PC came out in 1981, hence them building it out of commodity supplies and outsourcing the OS to Microsoft. As late as 2011 (20 years after IBM's transformation into a services company), the dividend yield was 1.5%, rather than the current 5%.