Munger Says Jury Is Out on Whether IBM Reinvention Will Work

  • IBM shift may work in mediocre way, may work big, Munger says
  • Berkshire counts Rometty's IBM as one of top holdings

Charles Munger, the vice chairman at Warren Buffett’s Berkshire Hathaway Inc., said it’s too early to say how successful IBM will be in reshaping its business.

“I am neither a believer or a disbeliever,” Munger, 92, said Wednesday of International Business Machines Corp., which is one of Berkshire’s top stock holdings. “They have an old business from which cash continues to flow, but they want a new product that is a hit.”

IBM shares have dropped more than 20 percent in the past year amid a revenue slump as Chief Executive Officer Ginni Rometty works to drive growth by focusing on newer operations, including cloud computing and data analytics, which she says are higher in value and more profitable. The new services, called “strategic imperatives,” now make up more than a third of IBM’s sales, but they’re not growing fast enough to counter a slowdown in the traditional business of older hardware, software and services.

Munger was speaking at the annual meeting of Daily Journal Corp., the publishing company where he is chairman. Daily Journal has moved into software, and Munger likened that company’s attempt at reinvention to IBM’s.

“I would say the jury is out” on IBM’s prospects, Munger said “It may work in a mediocre way, it may work big, I just don’t know.”

Buffett has been adding to his IBM bet since taking a stake more than four years ago, and has repeatedly defended his decision. He supported the technology firm at Berkshire’s annual meeting last May and again in a regulatory filing in November after declaring $2 billion of unrealized losses tied to the stake.

IBM shares fell 1.8 percent to $121.84 at 2:24 p.m. in New York. They’re down 11.5 percent this year, compared with an 8 percent decline on the Dow Jones Industrial Average.

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