IBM shares dipped close to their low for the year following a downgrade from Barclays.
THE SPARK: Analysts Ben Reitzes and Eric Sterling downgraded their rating on International Business Machines Corp. to “Equal Weight” from “Overweight,” on concerns about its cash flow and the negative impact of cloud computing on its business.
THE BIG PICTURE: IBM is one of many technology companies shifting its focus toward cloud computing, which allows customers to use software, store data and access other services online, rather than through their own computers.
Cloud computing has dramatically changed the landscape for companies that once made their money selling, installing and maintaining software, servers and other technology for customers who can now move to the cloud for many of their needs.
THE ANALYSIS: The analysts said in a research note that they expect cloud computing and software-as-a-service to adversely impact all of IBM’s segments in some way. They said that these trends are only in their early stages, and are likely to prove more disruptive in 2014 for the whole sector.
Additionally, they said the company’s cash flow may remain constrained in the future. That could be an issue for the company’s stock price, as the analysts said that investors are evaluating the company on cash flow more than earnings until its revenue starts to grow meaningfully.
So while the stock has fallen over the past several months, they expect it to continue to struggle.
SHARE ACTION: Shares fell $1.52 to close at $182.01 Monday, just outpacing a broader market decline. IBM’s stock price is down roughly 14 percent since this time in 2012.