IBM Expected to Report a Strong Q1 Despite Exposure to Japan
IBM will report quarterly earnings after the close of markets
today tomorrow. Shares were down nearly two percent to $163.10 in midday trading along with the rest of the market, though analysts expect Big Blue’s results to come in above expectations.
Analyst Chris Whitmore with Deutsche Bank Securities previewed the quarter in a note to clients this morning, and said he thinks IBM closed the quarter on the strong note. While the consensus calls for IBM to report $24 billion in sales and per-share earnings at $2.30, Whitmore is slightly more bullish than the Street on revenues–at $24.1 billion–and less so on earnings–at $2.24.
Checks indicate that IBM’s Power-based systems are taking business away from servers using Oracle’s Ultrasparc-based systems, the server business it took over when it acquired Sun Microsystems last year, though we heard nothing about that from Oracle when it reported earnings on March 24. On top of that, Whitmore foresees strength in the services business, and expects that IBM will report service signings in the range of $12 billion to $12.5 billion.
One headwind to watch: Japan. IBM derives about 10 percent of revenue from Japan and could take a hit on its results following the disastrous earthquake and tsunami that devastated that country last month, Whitmore says. Strength in other areas of the world may offset any weakness in Japan. “We expect management to duly update investors as to what, if any, impact these factors would have on IBM’s results going forward,” he wrote.
Whitmore expects revenues to grow a little more than five percent companywide, which includes a little help from currency rates. He says hardware and software sales both should grow 10 percent year on year, while services will show growth of less than 3 percent. Maybe the strength has something to do with all the publicity generated from winning at “Jeopardy” two months ago.
A few other points to watch: Deals. IBM publicly announced only four deals this quarter versus seven in the year-ago quarter, and only one was valued at more than $100 million. With so little data, it’s hard to get a solid feel for services bookings, Whitmore says, though he expects the bookings figure to track largely with the consensus.
(Image via from an 1980 IBM Poster designed by the late Paul Rand.)