For a long time, Warren Buffett (Warren) has refused to hold a technology firm because he thinks the future cash flow of technology companies is too difficult to predict.
But, over time,
But he did not completely abandon his position on science and technology stocks. His investment in the technology industry tends to be a well-known enterprise that is expected to produce strong cash flow in the next few years. Recently, he increased the stock of apple and reduced IBM stock. This is very similar to its investment in non - tech stocks.
Before announces Buffett's letter to Berkshire Hathaway shareholders in February 24th, the company disclosed in its fourth quarter Form 13-F document that it has reduced its holdings of IBM shares to 35 million shares and reduced to 2 million shares in the last quarter. Its share of Apple has increased from 134 million 100 thousand shares to 165 million 300 thousand shares (about $29 billion). This is equivalent to 3.25% of the shares of apple.
Berkshire Hathaway also owns two other technology companies: domain name registration company Verisign and insurance risk assessment company Verisk Analytics, holding 13 million and 1 million 600 thousand shares respectively.
In November 2011, Buffett held a $10 billion 700 million stake in IBM. From September 2011 to the end of 2017, even with a bonus, IBM shares provided only 4% of the return. In the same period, the standard & Poor's 500 index has more than doubled.
In a conference call conference held in January, IBM issued a slightly lower than expected earnings per share in 2018. This year's cash flow will be reduced by 1 billion US dollars to about 12 billion US dollars. At the peak of 2012, the company's free cash flow was up to $18 billion 200 million. This huge gap cannot have an impact on the investment decisions of Buffett and its company.
On the other hand, the free cash flow of the Apple Corp has increased from $33 billion 300 million in fiscal 2011 to $51 billion 100 million in fiscal 2017. Although the sales volume of iPhone X has been under some pressure recently, analysts generally believe that the free cash flow of Apple will increase by 13% over the 2018 fiscal year to 57 billion 800 million US dollars.
In the past five years, Verisign's free cash flow has increased by 48% to 720 million US dollars, and Verisk's free cash flow has increased by 42% to 560 million US dollars.
But what distinguishes apple, Verisign and Verisign from IBM is not just the growth of free cash flow. The three companies in front of them have a business model that can avoid the impact of technology.
Apple relies on chips, hardware and software engineering investment, making it a technology company. However, its brand, ecosystem viscosity and ultra high user loyalty provide a wide moat, which makes it closer to consumer Brand Company in a sense. This is especially true when you consider that its services (app stores, apple music, iCloud and AppleCare, etc.) continue to enhance user loyalty and create new revenue sources.
Similarly, Verisign's long term contracts to control.Com and.Net domain name registration provide many companies with envy and jealousy. Verisk's proprietary insurance risk data and long-term user relationships have proven to be a powerful moat against potential competitors in the years.
In addition, Alphabet, the parent of Google, is also a technology company with broad moat. It is a company that Buffett and his company regret not investing when the price is cheaper. Alphabet's core search business is close to natural monopoly because of its size and data. Its video site, YouTube, can also be called a monopolistic business.
Some of IBM's business, such as its host and transaction processing software department, also has a moat and a higher user viscosity. The company's long-term partnership with a lot of big companies and institutions is hard to match. However, considering the pressures that IBM is facing in recent years, it is still easily affected by the pressure of competition and the impact of technology.
The use of Amazon AWS cloud services and other mainstream cloud service platform platform has brought great pressure to many businesses of IBM, and it will continue to generate pressure. On some important software businesses, IBM faces fierce competition from companies such as Microsoft and Oracle. In some of the major services, it faces competition from companies such as Accenture and Infosys.
IBM is not unclear about these pressures. It has been relying on mergers and acquisitions and co - operation to improve its competitiveness and expand the fast - growing IT market. In the IBM years of lackluster betting, Buffett would rather choose from its investment in the comfort zone not too far to invest in technology companies.