Druckenmiller Shorting IBM in Bet Cloud Computing to Win

November 24, 2013 Leave a comment

Druckenmiller Shorting IBM in Bet Cloud Computing to Win

Stan Druckenmiller, who has one of the best track records in the hedge-fund industry over the past three decades, said he’s betting against the shares of International Business Machines Corp. (IBM) because the company’s business will be replaced by technology such as cloud computing. “It’s one of the more higher-probability shorts I have seen in years,” Druckenmiller, 60, said in an interview with Bloomberg TV’s Stephanie Ruhle at the Robin Hood Investors Conference in New York today. “IBM is old technology being replaced by cloud technology.”IBM fell 1.9 percent to $180.53 at 3:07 p.m. in New York. James Sciales, a spokesman for Armonk, New York-based IBM, didn’t immediately respond a phone call and e-mail requesting comment on Druckenmiller’ wager.

IBM’s sales have dropped for six straight quarters as the growth of services such as cloud computing have failed to make up for slowing demand for older businesses like hardware. The company is selling less-profitable divisions and is devoting cash to stock repurchases to help reach its forecast for growth in earnings per share.

IBM said last month that it added $15 billion to its buyback plan, part of Chief Executive Officer Ginni Rometty’s plan to achieve $20 in adjusted earnings a share by 2015, up from $15.25 last year. The hardware unit, which makes servers and other devices for business users, reported a loss last quarter.

Amazon ‘Challenge’

Druckenmiller said he is betting on Amazon.com Inc. (AMZN), and praised CEO Jeff Bezos. Amazon’s Web Services division, whose server farms generate the processing power the retailer sells to heavy corporate data users on the cheap, “is killing it,” he said. IBM should be investing in its business and taking on the “challenge of the Amazons of the world” instead of doing share buybacks, according to Druckenmiller.

“I think he’s a serial monopolist,” Druckenmiller said of Amazon’s Bezos.

Shares of IBM were down 3.9 percent this year through yesterday, compared with a 26 percent gain for the Standard & Poor’s 500 Index and a 47 percent gain for Amazon. If IBM ends the year in negative territory, it will be its first annual decline since 2008. Rometty took over as CEO in January 2012.

IBM’s backers include billionaire Warren Buffett, who has said long-term investors should root for IBM shares to languish in the short term, giving it a lower price to repurchase stock.

Druckenmiller said that while he has great respect for Buffett, “I don’t think technology is his area of expertise. He has often said that.”

Recommending Google

Druckenmiller described Google Inc. as the most “innovative company on the planet,” citing the company’s web-enabled eyeglasses and self-driving cars. He said investors who want to bet on innovation should buy shares of Google and those who want to bet against innovation should buy IBM shares.

Druckenmiller, a former chief strategist for billionaire George Soros, shut his hedge-fund firm three years ago and now manages his own wealth through his Duquesne Family Office LLC. From 1986 through 2010, he produced average annual returns of 30 percent at his hedge fund Duquesne Capital Management LLC.

Druckenmiller said that while his returns over the last 10 years were “very subpar,” they are superior to what’s in the market today. Hedge funds have returned an average of 6.9 percent this year through October, according to data compiled by Bloomberg.

Druckenmiller said he doesn’t share hedge-fund manager David Tepper’s view that the stock market as a “no-brainer opportunity.” Still, Druckenmiller said he doesn’t see anything to change the rising trend of the market.

He said in September that he had only a few small trades on as he waited to see who might replace Federal Reserve Chairman Ben S. Bernanke when he steps down at the end of January. Vice Chairman Janet Yellen has since been nominated to the post and is awaiting confirmation by the Senate.

In May, Druckenmiller said investors should bet against the Australian dollar. The currency has since fallen about 9.8 percent against the U.S. dollar.

To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net; Joshua Fineman in New York at jfineman@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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