International Business Machines Corp. (NYSE:IBM) reported a ninth consecutive quarter of declining sales and demand something that continues to raise lots of concern in the industry especially so with Duquesne Capital Management’s CEO, Stanley Druckenmiller, in an interview with CNBC. The recent drop in hardware and computer services demand has highlighted the need for an urgent plan to get more revenue from other businesses like cloud computing.
A major concern in the industry according to, Druckenmiller, is the way companies are more interested in buying stock and financial engineering rather than focusing on investing on core business operations.
“Kevin and I wrote an editorial together a few weeks back on balance sheet recovery and how corporations were more interested in buying back stock and financial engineering than investing in their business,” said Mr. Druckenmiller.
International Business Machines Corp. (NYSE:IBM) according to Druckenmiller has failed terribly on the fact that it has decided not to invest on technology business idea that is right in front of its face with huge potential in terms of growth going forward. IBM instead has opted to borrow money to buy back stocks. Failure to invest in innovative technology business ideas like the cloud has considerably affected the company’s earnings evidenced by a slump of 2% in its second-quarter revenue that came in at $24.1 billion.
International Business Machines Corp. (NYSE:IBM) stagnated in terms of its sales which are at the same level as they were in six years ago, this according to Druckenmiller can be attributed to the fact that the company has failed to invest in other key ideas in the industry. The company’s debt is now at a high as the company continues to push with the buyback of its stock in the market.
“They have had no increase in investment or capital spending. What have they increased? Their debt has tripled so that they could triple their buyback,” said Druckenmiller.
Capital spending according to Druckenmiller is at its lowest level compared to sales, considerably affecting productivity and not only affecting International Business Machines Corp. (NYSE:IBM) but the entire U.S economy.