Buffett Says Berkshire Has Bought About $10.7 Billion in IBM

http://www.businessweek.com/news/2011-11-14/buffett-says-berkshire-has-bought-about-10-7-billion-in-ibm.html

by mwbiz • 15 years ago

111 82 15 years ago

businessweek.com

jvehent2• 15 years ago

Invest in companies that are actually producing something valuable. That's the way to restart the economy.

Can we all move on from the social media bubble and get back to real work now ?

zanst2• 15 years ago

I think you're wrong, because "social media" is not a bubble. Actually, it's part of the real life. :-) And I don't know what Warren wants with this, maybe he's believing in another monopolistic move of IBM, which is not too smart these days.

jvehent2• 15 years ago

Actually, I agree with you on the benefits from social media to the society. But for 5% of useful features, there is 95% of trendy/fashionable projects that do not have any benefits to the grand scheme of things, are really expensive (color?) and are driving workforce away from more important projects.

tomjen3• 15 years ago

Can you please split your comment in two?

The first part is pretty on the spot, but the second part is stupid, wasteful and does not belong on HN since Social Media is productive (Facebook allowed me to get back in touch with some old friends that I haven't heard from in years). You don't have to turn out forks or dig iron from the ground just to be productive.

mvanga• 15 years ago

I agree that social networks facilitate communication on an unprecedented level and scale. The problem I see is that the users of social networks have become the product, being sold to the advertisers, rather than the other way round.

I think the point that the parent was trying to make was that it was useful (and still is) up to a point where we actually got the benefits from it (like in the example you mentioned), but people seem to be realizing that the rest of the "features" of social networks are simply ways to extract more metadata out of a person.

There are some really novel applications that have been born from the social networking movement, but this seems to be a minority compared to the endless amount of trash that is coming out in parallel.

wavephorm• 15 years ago

"Social Media" is just a buzzword for communications. I promise you that communicating over the internet is valuable and won't be going away anytime soon.

loumf3• 15 years ago

I don't think Buffett actually cares about that. Also, Facebook produces attention to sell to advertisers, and that's been valuable for a while -- the social part is just a good idea we have right now for attention, which in the past was newspapers, radio, TV, web portals, search engines, etc.

pagejim• 15 years ago

Perhaps it would be helpful for all, if you could specify what in your opinion is "real Work"? We're all here to share views and we could learn something from what is at the back of your mind.

nobody31415926• 15 years ago

Shipping real things for real money to real customers who themselves have real customers who are paying them money?

dereg• 15 years ago

Hmm, so reallocating a few billion dollars is going to fill the multi-trillion dollar output gap we've fallen into these past few years? No, the answer is no.

eegilbert• 15 years ago

... says the guy posting his comment via social media. (Yes, HN qualifies.)

nitrogen• 15 years ago

It bothers me when people apply a new buzzword to an old concept. Calling things like HN and forums "Social Media" is no more descriptive than calling a garbage truck driver a "sanitation engineer."

I can just imagine less scrupulous investors saying, "Hey, look! That thing you're doing? It fits in my overly-broad buzzword category! Give me money for my Social Media fund!"

Perceval• 15 years ago

But IBM doesn't build products anymore. They're primarily a consultancy.

pork• 15 years ago

On the contrary, they build specialized products for their clients; they just don't build consumer products. They build very complicated, extremely expensive products based on cutting edge research that they perform in their own labs, which is why this investment is solid.

I heard an IBM guy give a talk at a research conference recently, about a 1U rack system that processes 8 live feeds of traffic, automatically classifies vehicle color and type, and optionally registration, so you can ask queries like "show me all red sedan cars traveling north on monday the 8th". It was part of their better cities initiative.

SODaniel• 15 years ago

IBM and Oracle are the champions of the world when it comes to selling ultra customized supply chain and communication systems to Top-500 companies.

icki• 15 years ago

I wonder how much of it has to do with their new 3d semiconductors [1]. These things seem ideal for dedicated servers and the like.

[1] http://www.youtube.com/watch?feature=player_embedded&v=r...

loumf3• 15 years ago

Buffett usually doesn't care about stuff like this. He cares about profitable business models that throw off a lot of cash in dividends. He uses those to make big infrastructure investments for long term continuous cash (like utilities). His letters to shareholders lay out his strategy in very plain language.

martinkallstrom3• 15 years ago

Very little or a lot, depending on your perspective. Long term investments look at strong projections and long term development, not in a single technology with high risk. But projects like the one you refer to is certainly proof of a strong and competitive R&D capability, which is something to invest in.

asto• 15 years ago

That's one of the best shows of support Virginia Rommety could get!

6sigma• 15 years ago

FWIW, IBM is more expensive on a PE basis, trading at trailing PE of 14 compared to Microsoft's PE of 9.8.

chernevik• 15 years ago

He said he won't buy MSFT b/c he's close with Gates. If he bought and they announced a share buyback / dividend, people would wonder if he heard something from Gates. He sees no point in running that risk.

Not a MSFT fan myself but I have to regard Buffett's frienship with Gates as a pretty strong endorsement of him as a businessman.

bostonpete• 15 years ago

> I have to regard Buffett's frienship with Gates as a pretty strong endorsement of him as a businessman.

I would have assumed it had more to do with endorsing him as a philanthropist...

maigret2• 15 years ago

Yes, still IBM have been much better stock results than MSFT. Indeed, over this one year, the IBM stock has been doing better than AAPL.

parfe• 15 years ago

From not a very good trader:

I think, even if you include dividends, any money in MSFT has been completely stagnant for 10 years (and may have actually lost value). IBM stock paid dividends and nearly doubled in the same time period.

nknight3• 15 years ago

Hint: Watching CNBC doesn't make you a good investor, and throwing around the letters "PE" just makes you look like the worst kind of shallow, ignorant investor.

No experienced investor bases stock purchasing decisions off P/E ratio alone or even primarily, because the metric has absolutely no intrinsic meaning.

hessenwolf2• 15 years ago

P/E is pretty important, or could you back up why it is not?

xyzzyz• 15 years ago

Please, read the HN guidelines, especially the parts about being civil and replying to arguments instead of calling names.

bobbles2• 15 years ago

From what I undersand, Buffet has always avoided technology companies because he believe he didn't understand them well enough in order to invest.

Someone at IBM must have changed his mind?

leyfa• 15 years ago

Revealing my ignorance on this topic: Why would IBM care who owns their stocks, assuming the specific shareholder doesn't try to take influence on the development/direction of the company?

loumf3• 15 years ago

Buffett only owns companies at a level where he can influence. Usually, what he wants is profit paid as a dividend, but it depends on his level of investment. He usually does not invest for growth -- he thinks IBM is under-valued, so he's taking a position.

noahc4• 15 years ago

They don't. The parent is wrong in suggesting someone 'convinced' Buffet.

Because of the herd mentality around investing who invests in you does matter, but not for this discussion.

barry-cotter2• 15 years ago

IBM's business model is approximately

"We will solve your problems for piles and piles of money. Usually not problems that require technical breakthroughs or research level computer science knowledge, but ill-defined problems that involve many stakeholders, much politics, and complex business logic."

They make their money as a professional services company (a model Buffett has no trouble understanding) that uses technology.

That, at least, would be my take on it.

gaius3• 15 years ago

That is IBM Global Services, which is basically the same as Accenture, Cap Gemini, Wipro etc, IT outsourcing/offshoring. It's about half of IBM, by revenue.

wladimir• 15 years ago

problems that require technical breakthroughs or research level computer science knowledge,

They're not just a plain boring services company.

I'm sure that quite a lot of research went into Watson, and I think IBM is betting big on that technology. Potential applications are in healthcare (to quickly find an answer in all medical knowledge), legal documents analysis, and so on.

mathattack• 15 years ago

I wondered the same. All I can think is this is a sign that IBM is no longer a technology company.

martinkallstrom3• 15 years ago

Even more interesting: what IT stocks did he sell to put the money in IBM?

forensic• 15 years ago

I thought Berkshire doesn't invest in IT?

martinkallstrom3• 15 years ago

True (until now, I assume). But they must have liquefied some holdings, or did they front the cash for a $10B stake? It tops most of their existing holdings like $5B in Proctor & Gamble and $2B in Wal-Mart (which are some of the largest holdings they have on hand).

mark_l_watson2• 15 years ago

IBM has made some very good decisions, in particular realizing that huge amount of money that can be made in expert solve any problem services and sought to make infrastructure a cheap commodity so companies could spend more on services (i.e., investment in open source). So smart, and something I would never have been able to figure out without hind site.

nolok• 15 years ago

>hind site

hindsight

mark_l_watson2• 15 years ago

+1 Thanks. My wife copy edits my book manuscripts, need to get her to do the same for my HN posts :-)

pagehub• 15 years ago

I am involved with IBM quite a bit as we are through to the final of their Smartcamp competition.

I have been so impressed by the way they deal with small businesses, always looking to form mutually beneficial partnerships to fill in gaps in their service offering, giving small companies access to huge markets they would normally have no chance of entering.

Really excited about their future, think the best is yet to come.

ma2rten• 15 years ago

Like they did with microsoft?

windexh8er• 15 years ago

IBM is betting big on BigFix. I'm guessing this is a large component of that buy.

marshallp• 15 years ago

Might be something to do with watson. Maybe Buffet's privy to watson applications before everyone else and is making a bet on it.

hello_moto2• 15 years ago

IBM is a little bit weird. While it's true that they don't build product, they're still milking those old LotusNotes, FIM, WebSphere (enterprise version) installation.

Those things will become more expensive to maintain through time.

The recent IBM offerings are all based on Open Source being re-packaged:

- IBM packaged Hadoop

- WebSphere Community Edition is based on Tomcat

- IBM HTTP Server is based on Apache

By utilizing open source being pre-packaged and charging for support, they basically can get rid of expensive Software R&D and at the same time probably make an in-road to SMB: use the software that you've been using but with IBM support behind it! (discussion regarding the quality of IBM support is left for other time but let me say this straight up: Microsoft software support has been far more superior in terms of speed and the quality of the response than IBM lately).

Having said that, IBM is also becoming some sort of SaaS for government agencies. In some places in North America, IBM machines are printing the local ID card (and probably Driver's Licenses as well). So when a resident lose their local ID card, they'll have to pay the Government certain amount of money and IBM takes a percentage of that.

Maybe Buffett and his co. saw a big picture of IBM strategy to become more aggressive in that market (SaaS for big enterprises) seeing that Big Data is all the rage these days. That's a bigger lock-out that nobody can escape for years and still charging money without having to upgrade or add more features to compel people to upgrade.

tptacek• 15 years ago

IBM also contributes to many open source projects. Many major open source projects are staffed primarily by developers from companies like IBM. So this may just be what dev output looks like when a company embraces open source; a good thing.

AJ0072• 15 years ago

What I've noticed is Berkshire Hathaway public stock investments tend to fit two criteria -

First, does it pay a dividend? Yep, IBM does.

Second, is it integrated into the overall economy? I think of it as if imagining what would happen if the company just up and vanished over night. So railroads, power companies, this would result in a lot of other companies would have big problems.

Then of course there are all the other details like the companies finances, executives, and so on that you hear about over and over again in any literature about Berkshire Hathaway.

Consumer oriented companies dominate the news and books because all the inner workings are like a soap opera to the public. But, you can learn just as much from all of these other companies. Most certainly it hones your research skills since the details aren't being delivered to you on a silver platter.

hello_moto2• 15 years ago

I think you're right. My perspective of IBM is from what I read in IT related magazines/articles while investors's (Berkshire in this case) view it from a different angle that makes more sense for them.

Mine probably too detail and too narrow and may not paint IBM as a whole.

away• 15 years ago

Has Warren Buffett made any mistakes in his big investmests thus far?

Buffett Says Berkshire Has Bought About $10.7 Billion in IBM

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