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IBM earnings reveal two major challenges that won't be easily fixed

Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland discuss the earnings reports for IBM and Intel.

Video Transcript

- Thank you.

JULIE HYMAN: Speaking of big tech, we've got to talk about big tech right now. But more big legacy tech, not the companies that so much dominate anymore in the major averages. I'm talking of Intel and IBM, both of whom reported their earnings after the close of trading yesterday. Intel has the sort of added interest right now of being the subject of an activist campaign. It's got a new incoming CEO, Pat Gelsinger. And he was on the call.

Brian, this is something you noticed. It was a bit unusual to see the incoming CEO, the outgoing CEO, what, and the CFO, all of them on the call talking about what's expected. And it sounds like as well, Myles, that they are going to kind of take some of the suggestions that they've been getting from Dan Loeb over at Third Point who has been the one targeting the company.

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MYLES UDLAND: Yeah, Julie. As you outlined-- and Brian really flagged this for us earlier today. It was quite an interesting call when the call begins with the chairman, and then it goes to the not yet CEO. And Pat Gelsinger did come on at a couple of points during the call to-- to chime in on questions, promised detailed guidance for investors in their April-- no later than their April quarterly earnings release.

And I-- I think the Intel story is-- is so fascinating not only because of the Dan Loeb part, but really just what's happening in the semiconductor space. It's a theme that I see discussed more often among investors who are focused on where does the entire tech cycle go from here? And it really seems that semiconductor production, you know, fabrication of chips is-- is where all the energy is focused right now.

That quarter we heard from Taiwan Semiconductor TSMC last week where they blew out their Capex guidance, essentially saying, we're getting tons of orders from customers. And I think the thinking there's a lot of it's AMD and Nvidia. We're getting tons of orders. We need to increase our capacity.

That really has the entire semiconductor space on alert right now and has really put the pressure on Intel to-- to kind of step up and-- and be a leader once again. And there's a lot of concern that, you know, US semiconductor capacity, which has been faltering, is going to just meaningfully fall behind, and really harm the big US tech companies that I think-- we were just talking about Torsten-- are taken for granted as the leaders in the overall market.

BRIAN SOZZI: And guys, just taking the pulse of the street this morning at the, I would say unusual Intel call, Pat Gelsinger, the incoming CEO of Intel, he starts February 15. he's getting some pretty high marks for his enthusiasm on this call. And two things that stood out to me. One he said, quote, "This is his dream job." And then he pointed out that he actually started the company at 18 years old.

So I think Gelsinger is very excited to get in there, and get going, and I would not say save the company, but really drive a turnaround. I think why the stock is down here this morning, because he did say, we're going to continue to make the bulk of our chips in-house. He did leave the door open to making more chips outside of the Intel house.

But nonetheless, this is a guy with a lot of excitement, a lot of respect for Intel history. And I won't be surprised if over the next few weeks as the Street gets to know him a little bit better and his time at Intel, you would see the stock turn around.

JULIE HYMAN: Well, another stock that is not turning around, sales have not turned around, is indeed at IBM. The company has had lower sales every quarter-- or had lower sales every quarter in 2020. And IBM says that's going to turn around this year in 2021. But judging from the stock action this morning, there is not a lot of confidence on this point, Brian.

BRIAN SOZZI: Yeah, I have a story going up on-- on Yahoo-- on the Yahoo Finance platform shortly with a deeper dive on this. But you hop on that conference call last night with IBM, as I did, and you got the sense that this company can't wait until 2021 is over. There-- they mentioned executives at the company mentioned 2022 10 times on this call. And I think as an acknowledgment that 2021, despite only being 22 days in, is going to be a challenging year.

And a couple of things that came out to me, they're having problems right now closing large software deals. I think it's some of it is internally-related, but also, of course, because of the ongoing COVID-19 pandemic. And then secondarily, you know, Krishna, Arvind Krishnan, the new CEO of IBM, you know what? He wants his employees to have more of a growth mindset.

And he's focusing on jumpstarting the culture, and that's not something that changes overnight. That will take a few quarters to get going. But he did concede he wants to be measured by revenue. And in that regard, this was not necessarily a good quarter, and you will see continued revenue challenges that IBM at least for the balance of this year.

JULIE HYMAN: Yeah. Something else that really stuck out to me, Brian, just to mention quickly, cloud revenue was up 10% in the fourth quarter, 19% for the year. You know, so great, it went up and not down like the overall revenue. But if you compare that cloud revenue growth to the-- their competitors, to cloud almost anywhere else, it's much, much smaller gains. So it's an interesting area that's hot growth everywhere except seemingly IBM being one of the few exceptions.