(Bloomberg News) Warren Buffett, who said he was unable to predict the prospects for Apple Inc. and Facebook Inc., is betting more than $10 billion that International Business Machines Corp. is a different kind of technology firm.
Buffett previously focused the stock portfolio at his Berkshire Hathaway Inc. on consumer brands like Coca-Cola Inc. and financial firms like Wells Fargo & Co., saying he was able to understand their business plans. The strategy meant he missed the rally in technology companies like Research In Motion Ltd. and Nokia Oyj and then their subsequent slumps.
Buffett invested $10.5 billion to $10.7 billion in IBM, betting on the company's ability to maintain its market dominance in computer services and expand outside the U.S. Armonk, New York-based IBM gained 19 percent in the first nine months of the year as global stock markets plunged.
"Yes, they're a tech company, but they will not have the wild swings that we've seen throughout history, like a RIM or a Nokia where they catapult up but then the technology shifts against them and they plummet," said Louis Miscioscia, a Collins Stewart LLC analyst in Boston with a "buy" rating on the stock.
Before making the investment, Berkshire surveyed its own information-technology departments to see how they worked with suppliers and found many tended to stick with IBM, Buffett said today on CNBC.
"I probably read the annual report of IBM every year for 50 years," he said. "I don't think that there's any company that I can think of, big company, that's done a better job of laying out where they're going to go and then having gone there."
In March, Buffett said he would prolong his aversion to electronics makers such as Apple, saying he's unable to evaluate their future. He also said investors should be wary of social- networking websites, saying it is "extremely difficult" to determine their value.
IBM, which sold its personal-computer business more than six years ago, is now focused mostly on services and software for corporate customers. The company's financial forecasts and a five-year earnings plan distinguish it from technology companies whose performance hinges on the success of products for consumers.
Buffett has shunned technology investments in favor of industrial, financial and consumer-goods holdings in his four decades at Omaha, Nebraska-based Berkshire. He stayed out of the dot-com boom and bust, saying in a letter accompanying Berkshire's 2000 annual report: "We have embraced the 21st century by entering such cutting-edge industries as brick, carpet and paint. Try to control your excitement.
IBM, the world's largest computer-services provider, targets operating earnings of at least $20 a share by 2015, up from $13.35 the company projects for this year. Software will make up half of total profit in 2015, IBM forecasts. Analytics software, which helps businesses predict trends, is expected to draw $16 billion in sales by 2015, while cloud computing will draw $7 billion, IBM predicts.