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IBM Plans $15 Billion in Stock Buybacks

Posted on: Wednesday, 27 February 2008, 06:00 CST

IBM on Tuesday announced up to $15 billion in stock buybacks and a powerful new mainframe computer -- a reminder that a company doesn't have to be young and hip to be a big tech force.

IBM shares rose 4% to $114.38 Tuesday on the news that the Armonk, N.Y., company plans to spend about $12 billion on repurchases in 2008 alone. That number includes $400 million that IBM had previously allocated for buybacks.

IBM's stock surge helped the overall market rally, with the Dow Jones industrial average rising 115 points.

"IBM's profitable growth and consistently strong cash flow enable the company to continue to return value to our shareholders," CEO Sam Palmisano said in a statement.

The buybacks should increase IBM's 2008 earnings to at least $8.25 a share, a 16% increase from 2007, the company said. Previously, IBM had forecast earnings of $8.20 to $8.30 a share.

It's not the first time Big Blue has shelled out big bucks on its own stock. The company has spent more than $46 billion on repurchases in the past five years. It's also paid out more than $7 billion in dividends.

"IBM has done a pretty good job of using their cash to pay dividends and reward shareholders," says equity analyst Dave Novosel at investment research firm Gimme Credit.

Novosel says it's a little troubling that IBM will likely borrow some of the money for the buybacks. (IBM has about $16 billion in cash and short-term investments.) But, overall, "In lieu of better opportunities, this is probably not a bad way to reward shareholders."

IBM spokesman Edward Barbini says IBM is having no problem finding places to spend its money. He points out that IBM has spent more than $20 billion buying 64 companies in the past five years.

Big Blue also announced a giant new mainframe computer, the System z10. Mainframes are not nearly as popular as they once were, because companies are increasingly using groups of small computers instead of one huge one.

But IBM says there's plenty of demand for the System z10, which is as powerful as 1,500 smaller computers, because it can tackle huge processing problems or many small ones at the same time. It starts at about $1 million.

The computer is "an indication that (IBM) can make dramatic improvements" that will lead to growth, says Tom Smith, an equity analyst at Standard & Poor's.

IBM is attractive to investors because it has a range of businesses, including big servers, consulting and software, Smith says. It's also geographically diversified. About two-thirds of revenue comes from outside the USA, isolating it from many market shifts, he says.

Source: USA TODAY

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