IBM – CEO Sam Palmisano Should Look at Facts First

September 15th, 2010 by hackel Leave a reply »

IBM (IBM) CEO Sam Palmisano should measure his words prior to speaking badly of others.

In an interview with the Wall Street Journal, Palmisano said that during former CEO Mark Hurd’s five-year tenure, Hewlett-Packard (HPQ) was hurt by sharp cuts in its R&D budget, and that the company was declining in relevance.
Meanwhile, over its past five years, spending on R&D at IBM is flat while capital spending has declined by 21%. In addition, the firm has exaggerated its free cash flows due to pension underfunding and other activities, both of which we have written about in the past.

In the chart below, showing the past 5 years R&D spending, the lines between IBM and HPQ do not look much different. Also, one should not distinguish between purchased and in-house R&D in cases such as HPQ which have been successful acquirers.

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Disclosure: No positions

Kenneth S. Hackel, CFA
CT Capital LLC

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