One thing I wanted to do this afternoon is talk about the rare class of company—ExxonMobil, Wal-Mart, and IBM come to mind—that has no choice but to repurchase shares of the company’s stock. If you read much investment commentary on the company, you will walk away with the impression that IBM has no plans for growth or moat-building and is surviving slowly on the use of existing cash flow to retire stock to create an illusion of progress.
To understand why IBM makes the capital allocation decisions that it does, I find it wise to keep IBM’s size in mind. IBM is one of those two or three dozen firms in the world that when you buy an ownership stake, you are really buying into something that is the size of a small country. For instance, the company is going to generate about $97 billion in revenue or so this year, conditional upon the next quarter’s report. As a point of reference, the entire country of Libya produces $95 billion worth of goods and services in a year. The entire country of Morocco produces $95 billion worth of goods and services each year. The entire country of Puerto Rico produces $105 billion worth of goods and services per year. So when we talk about IBM, we’re talking about something that has an output roughly the size of Libya, Morocco, or Puerto Rico.