When Warren Buffett surprised markets in 2011 after announcing that he had started building up a stake in IBM – a member of the tech sector from which Buffett had traditionally kept a safe distance – we joked that the only reason for his involvement was IBM’s then unprecedented buyback spree. A few short years later, IBM’s buybacks ended with a whimper when its debt level hit record highs (the company’s credit rating was recently downgraded) even as its revenues continued to post a record slide and were back to levels seen at the start of the Millennium, while EPS only beat thanks to ever lower effective tax rates.
Which is why we were not surprised to learn overnight that Buffett’s Berkshire had dumped a third of its stake in IBM in the first explicit sign of declining confidence by the famed investor.
Speaking with CNBC, Buffett said he had sold the substantial holding, worth more than $4bn at the current share price, after “revising his view of the company’s competitive prospects.”
‘I don’t value IBM the same way that I did six years ago when I started buying’.’.’.’I’ve revalued it somewhat downward,’ he said. ‘IBM is a big strong company, but they’ve got big strong competitors too.’
“I think if you look back at what they were projecting and how they thought the business would develop I would say what they’ve run into is some pretty tough competitors,’ Mr Buffett added,
This post was published at Zero Hedge on May 5, 2017.