Warren Buffett, who has in the past refused to invest in high-tech companies because of challenges in predicting long-term growth, is betting big on IBM (NYSE: IBM).
He sees growth potential and a plan to deliver it.
“They have laid out a road map and followed it extremely well,” Buffett said early Monday on NBC. “I probably read the annual report of IBM every year for 50 years.”
Buffett’s Berkshire Hathway firm has recently bought 5.6 percent of IBM’s share at around $170 each for an investment reaching $10.7 billion.
“There’s a fair amount of presumption in many places that if you’re with IBM, you stay with them,” Buffett said.
“If you’re in some country around the world and you’re developing your IT department, you’re probably going to feel more comfortable with IBM than with many companies,” he added. “They’ve done a terrific job of developing that.”
Investors Rally to Stock
The news drove up IBM shares in early trading.
“He had the funds and the opportunity to purchase shares at an attractive price,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business., told Bloomberg news “He’s not going to panic when there is some temporary economic problems which could cause the stock markets to plunge for some period of time. He just sees that as a buying opportunity.”
IBM, which employs some 10,000 people across North Carolina, is investing in areas such as emerging markets and analytics software to boost earnings. The company has said it will generate $100 billion in cash flow from 2010 to 2015 and return 70 percent of that to shareholders.
Buffett said he was betting on IBM’s ability to help clients’ information-technology departments outside the U.S.
Last month, IBM named Virginia “Ginni” Rometty the first female CEO in the company’s 100-year history. She is taking over from Sam Palmisano, who increased earnings by steering the company toward software and services, and disposing some hardware businesses such as personal computers.
IBM targets operating earnings of at least $20 a share by 2015, up from $13.35 the company projects for this year. Software will make up half of total profit in 2015, IBM forecasts. Analytics software, which helps businesses predict trends, is expected to draw $16 billion in sales by 2015, while cloud computing will draw $7 billion, IBM predicts.
(The AP and Bloomberg news contributed to this report.)
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