Why IBM Is as Cheap as Chips

NEW YORK ( TheStreet) -- Over the last five years IBM ( IBM) has been very, very good for investors.

Since November 2008 the shares have more than doubled in value and the dividend has been increasing at regular intervals, standing now at 85 cents per share, a yield of 1.66%. IBM can well afford the $1 billion quarterly payout -- profits range from $3 billion to $5 billion each quarter.

Despite this, all is not well at Big Blue, at least according to analysts.

A quick calculation shows IBM's market cap is only 2.21 times its annual sales. The figure for Apple ( AAPL) is 2.73, for Microsoft ( MSFT) 3.12 and for Google ( GOOG) 4.95. The only large tech company doing worse by this measure is Intel ( INTC), at 1.96.

IBM is literally as cheap as chips.

Why? Stagnation on the top line is usually blamed. IBM sales today are no higher than in 2008. Its gains are explained entirely by rigid cost-cutting, which has slowly increased profit margins, and has gotten operating margins to near 25%, close to those of Apple and Google.

Moreover, IBM makes few waves. Check the news headlines around the company and you will find very little that's interesting. It's all new customers, new research results, new capabilities and new donations of gear. Services chief Michael Daniels recently sold a little over 10,000 shares, but he was in the process of retiring. On Wall Street $2 million is just a gold watch.

IBM has a road map with $20 billion in acquisitions due by the end of 2015, ZDNet reports . Most of the deals have been relatively modest, highlighted, according to Forbes, by $1.3 billion for Kenexa , a "talent acquisition" outfit, last year.

Analysts are pushing for the company to make a run at NetApp ( NTAP), Bloomberg says, but the cloud storage company seems to be outside IBM's price range, at $12.9 billion. It's also a hardware company.

A more typical IBM buy is Butterfly Software, a data migration and analysis company out of England, which TechCrunch reports was quietly purchased in September.

Quartz thus calls IBM a "creaky old business," but in noting how most of its "big" software deals are in the past they're missing the point. What IBM is trying to build is a suite of "big data" and cloud applications, software that makes its own cloud services worth a premium price, and make it an obvious choice for private clouds.