IBM, also popularly nick-named the Big Blue, has come under heavy scrutiny lately. The company’s quarterly revenues have declined consecutively over the last fourteen quarters. Revenues have been declining as the company shifts its corporate strategy from low-profit businesses, which include cash registers, low-end servers and semiconductors, to emerging areas which include security software and cloud services. The new businesses essentially have failed to make up new revenues from revenues lost because of its divestitures.

Renewed Corporate Strategy

Under the leadership of Ginni Rometty, IBM has been investing in technology that the company believes will better serve business customers. With the rapid rise of cloud computing, corporations are increasingly buying computing resources and software on demand instead of buying their own data center gear and software licenses.

SEC Investigation

To compound its existing revenue related blues, in its 2015 third quarter 10-Q, IBM disclosed “… the SEC is conducting an investigation relating to revenue recognition with respect to the accounting treatment of certain transactions in the U.S., U.K. and Ireland. This was the entire length of the disclosure related to this matter. Understandably, IBM is being very discreet. IBM has been a subject of several SEC probes in the past, including an investigation in 2013 on how it reported revenue from cloud computing business. However, in the past, the regulators decided not to recommend any action following their investigations. It remains unclear whether this time might be an exception. The company declared that it is cooperating with the SEC in this matter.

Analyst Reactions

Many financial analysts are less favorably impressed with the company’s performance. While the majority of the analysts have maintained their “Buy” ratings on the company, they have reduced their price targets. The negative response from analysts is surprising given that IBM has a tradition of paying dividend, has increased its dividend payment over time and, it frequently buys back its stock.

Investor Returns

If you were credited with 1,000 shares of IBM in 1995 and sold your coveted investment by 2013, you would have earned $195,000, which yields a staggering 14% return per annum! If you continued to hold onto the stock, your credit balance today would be worth $140,000, which still gives you a whopping 10% return per annum.

The question is whether today’s investors can expect similar returns from IBM? Can Ginni Rometty’s strategic direction yield returns comparable to those of the past or has IBM not kept up with the speedy evolution of the technology world?

Regardless of your response, IBM is no longer that low-risk bankable company. There is considerable risk if you invest in the company today!

http://fortune.com/2015/10/27/sec-investigating-ibm-accounting/

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