I started a position. At a PE=12, this is a value, assuming they will keep growing earnings. I think they can, even with flat top line revenue. And with that, significant cash flow still gives IBM enormous potential.
For me, the key issues are:
1) employee morale
2) a slower global economy
3) the transition to cloud computing
4) NSA spooking foreign buyers
The employee issue in my mind is the key. IBM needs to attract & retain bright employees and enable their bottom up product management, product development, and sales initiatives. The other issues are well within IBM's capabilities to circumvent.
Anyway, I plan on averaging down, which might be necessary. But I can't see IBM becoming a bust of a company. It remains the best company to produce seminal computer science. Again, they just have to enable their software engineers & sales folks to cleanly finish front facing social & mobile applications...which is a necessity these days...and which requires the best & brightest, especially young minds.
I'd add as an issue the margins on consulting. A consultant is hired by IBM say at 100K, 50/hr. Clients end up being billed twice, even three times that for the consultant plus expenses. A business model with such high margins is doomed to fail sooner or later.
Will consulting ever go away? Even with the cloud, considerable work must be done to develop applications on, for example, Amazon Cloud Services. I'm doing this kind of work right now. I still have to configure a linux OS, databases, and what not. It's no different than if the machine were on premise.
Make no mistake about it, enterprises will continue to significantly develop applications. They still need the stack of web server - app server - persistence layer, etc. Not everything is about buying a ready to go SAAS application.
And even with SAAS applications, there is a need for consulting, sales engineers, and developers. Fine, you need less of them, but bill accordingly.
Lastly, what about new applications? What if IBM revolutionizes voice based artificial intelligence backed by biological computers and biological optimized programming languages? How much will this cost, on site or in the cloud?
I think people underestimate the evolution of markets...and the ability of IBM to drive such evolution, talk less of adapting to it. 100 years of success speaks loudly here. It was loud enough to make me a buyer today.