The worst quarter for IBM in Years, Here's What Happened

Let's start with IBM tumbling on these preliminary results. Company sites weakness in its software and infrastructure business as clients shifted their spend towards servers, storage, and memory in advance of potentially some price increases. In his letter to investors, Arvin Krishna said, quote, "This quarter we faltered." Uh Jim T down 24p market I think would be the worst since at least the early 60s. >> Yeah. When I spoke to Arvin and I Christian, CEO used it too. I mean, >> pretty abject. uh look there are these concerns he did not anticipate I'm putting the magnitude of the capex uh repartization which you mentioned but I also think that clients were distracted rapidly evolving industrywide cyber security concerns this is mythos and both uh uh Nikesh Aurora on May money David and George Kurts just now uh from crowd strike said look we they each have briefed a thousand companies their teams thousand companies on mythos right and mythos frozen a huge amount of spending that I did not know it had gotten that bad. Y >> so I pass it on to you. >> Um company reports the actual earnings on the 22nd. So 8 days from now >> the key I think will be Jim do they have the confidence to give us some sort of a forecast that >> the orders that did not come in this quarter will ultimately come in because as they said companies were perhaps more focused on cyber security or as they also said spending on servers storage and memory or is this longer term in nature and some real reflection of a lack of execution in terms of their sales Salesforce. >> Well, I do think that remember this is a company that has a mainframe, okay, and the mainframe software stack was disappointing and the mainframe sales were disappointing and this the revenue looks like it's almost in live street looking for 17.86 billion >> be about 1%. >> Yeah, but it's that software revenue which is uh people for uh for uh people looking for 10% it came in at 5%. Uh infrastructure revenue down 7%. That's that's their main frame. And so I think my David, my answer is it may not come back. >> Really? >> Yeah. >> Then if that's the case, is a 24% decline in the stock price warranted? >> Yeah, I think it is. I mean, this is hard. I a lot of people know Arvin's done a lot of things very forwardlooking, but I don't I think there's this is a fundamental shift of who of this is buying compute. This is what we talk about. This is this is Nvidia and this is SKH Highix and and this is Micron. The money's going to another area and I don't know if it flows right back. >> Service Now, uh CRM all taking a hit pre-market. The more pernicious theory, Jim, is that this is part of the move to direct enterprise on premises Starbucks. We've talked about these things. I thought the Starbucks things was much more important than a lot of people realize trying to cut out $400 million from IBM from Microsoft. Microsoft has been up has been creeping up here. Uh I talked with with Mark Betty. He would tell you that's completely wrong. I mean that his business is better than ever. Adobe business is bad. Service Now would tell you business is not only better than ever, but they're going to you know they're going to surprise a lot of the people who are negative. All I know is is that this is not where you want to be because it just doesn't resonate where you want to be. I mean, look at this SKH Heinix. Now, look, SKH, what do you think it's selling for the multiple for next year? >> Eight times. >> 3.8. You're kidding. >> No, I'm not kidding. >> Wait, what? >> 3.8? >> I thought I was good at eight times. >> You were wrong. >> I was. >> That's That's sort of the running joke this morning is that if the Cosby is truly popping a bubble, it's the cheapest bubble that ever got popped. I mean, of course, this is this comes back to the idea that usually these companies are going to have their earnings cut by a quarter. Remember, Micro is losing big money. And you know, when you're losing big money, people are like SAYING TO SANJAY, WHY are you spending more money? Well, I'm losing so much money. What money do I have to spend? And yet, he still did spend money, which is why he's doing better than the others. >> We'd have even less capacity right now, right? If we hadn't spent money, >> this is about compute. It's about compute and it's about cyber security. Cyber security is look that's top of mind we know that but when I say compute it's like this is about all the things that we talk about it it's about the spend I mean when you remember yesterday you said listen you spend the 50 billion that's that's the antie >> yeah for 5 gawatt of building the buildings yes >> right but I'm just saying what I'm reading today >> what they call a powered shell >> a gigawatt in Salem PA what was I doing buying land in Upper Bucks when I could have been buying in Salem another 100 miles I'd be a rich man. >> You would be. Listen, yeah, there have been I mean there are stories every day now about >> farmers selling their land for data centers and reaping a big rewardly. By the way, we should mention New York State. >> No surprise, a one-year ban from the governor on new data center development. >> Mega mega data center. >> The only thing they let us do is is bring is get the sand from Corning. >> Best sand in the world. >> Best sand in the world. Best in the world. Yeah, it's good to know. Thank you. >> You're welcome. Um, all right. But just to go back to those software companies because we are seeing a broad sell-off despite what is an incre a nice move in the NASDAQ. Is it justified based on this language from >> it's justified on this stupid ETF that takes everything down. Crowd Strike and Palo Alto which are being big beneficiaries their stocks are going to be down because this all the money is in this well most of the money that trades is in this index that can take every >> You mean IGV? What do you think about the IGV? And you know, I've tried to revise the IG. I told management, listen, I'll revise this IGV in a nancond. It is such actually I did I gave him something. >> I'll tell you what's going to have a good day is the DRAM ETFs. Oh my god. Yes. >> I mean some of these gains you mentioned SK Highix Jim, but uh Glowworm's up six, Western Dig up almost seven. >> Yeah, I mean Glowworm was down badly yesterday. Glow is down 100 points from its high. Uh I know that networking and security also look I'll give you one. Cisco. >> Cisco. >> Cisco. >> Why Cisco? And not the SY kind, by the way. >> No, I understand. >> Do you? >> Yeah. >> You see Micron up 50. >> It's already up 55% for the year. >> Well, it's the best best Dow stock then Caterpillar back. >> It's not done. It's an inexpensive stock versus these others. And it spent a lot of money on cyber security when you know it bought Splunk, which was great cyber security. >> I'm aware. Listen, they're all they all were relatively cheap unless somehow the spending >> were to drop precipitously for unknown reasons. >> Okay, so yesterday they were relatively expensive. Today they're relatively cheap. >> Well, no. You just told me SKH Highix is selling for less than four times earning next year. >> No, I'm saying that yesterday was a horrible day for everything that's great today. So, what is that? Are we going to play this game every day? Come in here and say, you know what, ARMS Well, no, ARM today, they there was a negative piece about how they didn't get any foundry. >> Oh, I saw City take it higher. uh ARM that is >> well I mean yeah look AR there's a case for ARM because it's it's well it's in everything and it's hardware but I mean you you know you look at somebody wants to make a name every day like this fellow who hasn't liked Apple since I knew you were going to get to this >> well why not >> I mean why not to underweight >> yeah well he wants people out of a great opportunity and I don't blame him I sometimes analysts say you know what I'm going to I'm going to make it so no one makes any money on Apple >> you're not finding I will. >> You'll get to it. >> There it is. He found it. >> Okay. So, what has he done? When was the last time I thought it was at the bottom of your pack? >> I'm going to give a little quiz to my partner over here, Mr. Three Point. When was the last time he like Mr. um Brandon Nispel? I probably just sitting there right now and saying, "Oh my god, he's making fun of me." Um what was when did he like Apple last? >> I have absolutely 178. >> Okay. >> Wow. He really nailed it. >> Jeez. And we didn't even mention HSBC taking IBM to reduce that was the other sort of negative. >> Now this was before before the thesis is is that it's double thesis that the that the U >> ion Q taking their quantum >> and and then the idea that they are going to get hurt by the carriers not not giving you such a discount. Oh and that the service stream is not as good. How many times have I told Tim Cook, I said, "Is there any way you can announce you can any way you can figure out the service stream ahead of time?" He said, "Absolutely not. You'll never be able to do that." I mean, you know, there's Tim Cook is like, you know, Tim, I think I know it. Do you know that Tim Cook tells he he likes the truth, >> does he? >> Yeah, he likes the truth. He can handle the truth.