I think both companies deserve the benefit of the doubt, simply because they have done a terrific job in the last few years of hitting good targets and defying the skeptics.
IBM didn't deliver the revenue growth we would like. There were some big orders that didn't get filled, and there were some real hardware weaknesses. That said, I believe that Big Blue, even with a new CEO (Virginia Rometty), should be given some slack here. The company hit its earnings targets and then some. It's not expensive on $15 in earnings.
Most important, the company continues to transition to a hardware-light model, and that will produce some hiccups. The fact that business was strong in the United Kingdom and Spain--Spain, of all places--makes me feel that the product that IBM offers is in need, no matter what. The software growth was just $7 million shy of 2%. In my view, it has run, it's now resting, and it will start climbing again, soon.
Intel is extremely complicated. You have a disk-drive shortage that curtailed the need for new PC chips, because the manufacturers couldn't make enough PCs to meet demand. You have a huge Windows product cycle coming up, and that has always been terrific for Intel. You have a number of plants opening up at the same time for its PC chip, Ivy Bridge, which will knock down margins temporarily, no doubt because of difficulties with the yield of chips that are perfect. That always happens. You have this amazing new Romley chip that will be so important for overheating data farms.But most important, Intel has people I trust, CEO Paul Otellini and CFO Stacy Smith, saying that the transition will be completed this quarter and that the rest of the year will portend an increase in gross margins. That's good, because gross margins drive earnings, which drive cash to be returned to shareholders, and Intel's aggressive dividend increases have proven to be major catalysts for stock performance down the road.
I don't want to ever lose my skepticism. You want to see companies hit on all cylinders, the way an Intuitive Surgical or United Rentals did. You want to see "no hair" on any quarters because, when you do see it, that might not be the end of the bad news.
Still, though, one of the benefits of being in this business for so long is that I can sense corporate cultures and what they are about, and Intel and IBM are about adjusting, getting it right, and under-promising while over-delivering.
I am acutely aware when I see the outrageous personal loans that Aubrey McClendon, the CEO of Chesapeake Energy, is taking out to make huge bets on nat gas--something he apologized for and said he would not do again just a few short years ago while on the set of "Mad Money"--that it's difficult to ever make a solid judgment on character.
But Intel and IBM are, like people before the docket in court, innocent until proven guilty. Their long-term performance gives them that advantage over so many of the other companies I follow.
Disclosure: Cramer's charitable trust is long IBM.
