As revenue growth slowed at IBM in late 2011 and early 2012, investors were willing to cut Big Blue some slack.
This was, after all, IBM, which had hooked investors on the simple concept of a "roadmap" with a five-year earnings-per-share target. The 2010 roadmap was nothing short of a spectacular success, as the company exceeded its target of at least $11.10 per share. It was no surprise, then, that IBM upped the ante, with a new five-year "roadmap" that included a goal of at least $20 in "operating" earnings per share by 2015.
From that point on, until a few quarters ago, nothing else mattered but the $20 target.
Then, as I wrote a quarter ago, as the stock started to sink, investors woke up and realized that risk (and reality) was finally catching up with IBM.
I've always been dubious of long-term EPS targets like IBM's.
It's not that the company can't get there, it's that once it gives a big number years out, it's under pressure to make that number -- no matter what.
In the past, I've questioned IBM execs about the wisdom of such a long-term target, and they proudly showed off their colorful charts and graphs on how they expected to get there. This much would come from share buybacks. This much from a catch-all known as "operating leverage," a.k.a layoffs. And this much from future acquisitions.