The milestone is underlined by an 11 percent increase in share price for the year-to-date, and reflects, among other things, the company’s shift away from hardware to data-analysis software. IBM projects that its data-analysis division will add $20 billion in revenue in 2015, $4 billion higher than an earlier goal it had set for itself.
The company turned to software in earnest in the early 1990s and has long been dominant in that field. However, just as fundamental to the company’s long-term success is its dividend payout/share buyback strategy, which has been more or less consistent for the same period of time.
IBM has consistently bought back a good amount of its own shares; between the end of 2010 and 2015, the company plans to use $50 billion of its cash in share buybacks, and less than half of that, $20 billion, for dividend payouts. The numbers for last year are analogous to the five-year period: $10.5 billion on buybacks and $3.8 billion on dividends.
This is a Buffet-esque strategy for creating shareholder value (coincidentally, Buffet has considerable holdings in the company), and it has undoubtedly worked. For 20 years since being taken over by Louis Gertsner, IBM has consistently upped its share value by reinvesting in itself. The reason this has all happened without so much fanfare is perhaps due to the nature of IBM’s current business, which is less focused on consumer retail and computer hardware, and more geared towards data-analysis and security services software for businesses.
So while other tech companies like Apple (AAPL), Samsung (SSNLF), Blackberry (BBRY), and now even Google (GOOG) battle it out to release the newest mobile gadget and try to out-innovate one another in a fairly saturated market, IBM has been able to “sit back”, stick to what it does better than almost anyone, and watch its stock slowly and steadily increase both in price and in value. Today’s record high is just one indication of how well this has worked for them, and may even present a desirable model for other maturing tech giants that are sitting on lots of cash.
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