Big Blue back to big buybacks
Wednesday, 28 October 2009

By Matthew Quinn

International Business Machines announced plans on Tuesday to step up its share repurchase program after spending the first nine months of the year cleaning up its balance sheet.

The company's board of directors authorized $5 billion in additional funds to be used on share buybacks. That amount is in addition to approximately $4.2 billion remaining at the end of September from a prior authorization. IBM said it expects to request additional share repurchase authorization at its April 2010 board meeting.

IBM has one of the more aggressive share buyback programs, returning $73 billion to shareholders through buybacks and dividends since 2003.

However, the pace of buybacks slowed dramatically this year. Through the first nine months of 2009, IBM repurchased $4.4 billion in shares, compared to $9.8 billion in the same period a year earlier.

Instead, IBM has focused on reducing its debt outstanding. The company has cut its debt by 25 percent since the beginning to the year, bringing it to $25.5 billion as of Sept. 30.

Even after the billions spent on buybacks and debt reduction, IBM ended the third quarter with $11.5 billion in cash, cash equivalents and marketable securities on hand, down roughly 11 percent since the end of 2008.

The tech giant continues to throw off billions of dollars in cash flow even as revenues have declined year-over-year for each of the past four quarters. Chief financial officer Mark Loughridge, however, said in IBM's recent earnings conference call that the company expects that streak to end in the fourth quarter. But analysts believe that might include the effects of a weak U.S. dollar on international earnings.

That should lead to investor questions about where growth will come from in the future if massive buybacks cease to satisfy their need for returns. IBM hasn't been in the M&A game for some time, announcing only five deals with values that had to be disclosed, according to data from Thomson Reuters. Of those, four were divestitures, including the sale of its sales and client support operations to Dassault Systemes for $600 million, which was announced Tuesday.

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