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The resignation of IBM executive Jim Whitehurst, pictured above, was revealed on Friday.
Bloomberg/David Paul Morris
The stock of International Business Machines has continued to fall since the company announced a management shift on Friday, which included the surprising departure of CEO Mark Hurd.
IBM
Jim Whitehurst is the president and CEO of Red Hat. While IBM stated that Whitehurst will continue to serve as a “senior advisor” to CEO Arvind Krishna and the rest of the leadership team, the lack of a clear explanation for Whitehurst’s abrupt departure has IBM investors concerned. The shares of IBM (ticker: IBM) fell 1.5 percent to $137.93 on Tuesday, bringing the stock’s two-day drop to 6%.
Many onlookers believed Whitehurst would eventually succeed Krishna as CEO, according to Stifel analyst David Grossman in a research report published Tuesday. “It is still unclear why Whitehurst is leaving,” Grossman said, adding that if the matter is left unresolved, the stock might overheat. However, Grossman reiterated his Buy rating on IBM shares, maintaining his $151 target price and noting that the company currently yields 4.7 percent.
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Whitehurst’s departure is “more of a natural progression than a red flag,” according to Morgan Stanley analyst Katy Huberty, who adds that “while investors are concerned that this has negative read-throughs for the health of IBM’s hybrid cloud business and/or future outlook, we see this as a natural progression for Jim, as most of the Red Hat integration is complete.” Meanwhile, she warns that a recent IBM email outage could have an influence on the timing of some sales and the company’s second-quarter financial performance. She mentions that IBM has switched to new internally hosted email servers, and that “the migration didn’t go as planned,” leaving some employees with sporadic email access and calendar access for four to five days. “As IBM apparently demands contract e-signature before midnight on the last day of the quarter to register a deal as revenue in the quarter, this could result in some revenue recognition being pushed out,” she adds. “In addition to any implications for the June quarter, the disruption poses a reputational risk for IBM Services, which performs thousands of customer migrations like this one each year.” On IBM shares, Huberty maintains her Equal Weight rating and $152 price objective. IBM could not be reached for comment right away. Eric J. Savitz can be reached at eric.savitz@barrons.com./n
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