Recently, technology giant International Business Machines Corp. (NYSE:IBM) experienced a significant drop of more than 8% in one trading day to only $190 per share. The drop took away all of its gain since the beginning of the year. In the past twelve months, IBM has actually declined nearly 5%.
However, over a longer time horizon of around 10 years, long-term International Business Machines Corp. (NYSE:IBM) shareholders must be quite happy, as IBM has still delivered a total return of more than 160%, beating S&P 500’s total return of only 74%. Should investors consider the recent dip as a buying opportunity? Let’s find out.
Technology services and software bring the most business
International Business Machines Corp. (NYSE:IBM) has a long history dating back to 1911, when it was known as the Computing-Tabulating-Recording Company. The company is considered one of the biggest information technology companies in the world, operating in five main segments — Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing.
Most of its revenue, $40.24 billion, or 38.7% of total 2012 revenue, was generated from the Global Technology Services segment while the Software segment ranked second, with $25.45 billion in revenue in 2012. However, as the Software segment contributed the highest pre-tax income of $28.7 billion with an operating margin of 37.6%, Global Technology Services contributed nearly $7 billion in operating income.
Sluggish first quarter performance
The reason why International Business Machines Corp. (NYSE:IBM) shares dropped was due to the sluggish performance in the first quarter of 2013. IBM experienced a decline in both revenue and pre-tax income compared to the first quarter last year. While revenue decreased 5.1% to $23.4 billion, its pre-tax income dropped 6% to only $3.6 billion.
However, because of the lower provision for income taxes and lower total outstanding shares, its EPS actually reached $2.70 per share, 3.4% higher than the EPS in the first quarter of 2012. It is the first time that IBM has missed analysts’ estimates since 2005. Its non-GAAP EPS came in at $3 per share, lower than Wall Street’s expectation of $3.05.
International Business Machines Corp. (NYSE:IBM) uses quite some leverage in its operations. As of March 2013, it had $19 billion in total stockholders’ equity, $10.6 billion in cash, and $24.7 billion in long-term debt. In addition, the company recorded as much as $19 billion in retirement and non-pension post-retirement benefit obligations. At $190 per share, International Business Machines Corp. (NYSE:IBM) is worth $211.6 billion on the market. The market values IBM at around 8.75 times EV/EBITDA.
Intel Corporation (NASDAQ:INTC) also had a declining first quarter
Intel Corporation (NASDAQ:INTC), one of the biggest chipmakers in the world, also reported lower Q1 2013 revenue and net income compared to the first quarter 2012. Revenue decreased from $12.9 billion in Q1 2012 to $12.58 billion in Q1 2013, while net income dropped from $2.74 billion, or $0.53 per share, to $2 billion, or $0.40 per share.
Intel Corporation (NASDAQ:INTC) is significantly affected by the overall weakness in the global PC industry. Its PC Client Group’s revenue witnessed an year-over-year decline of 6% to around $8 billion, which accounted for 63.6% of total revenue.