Eyes on IBM Results Amid Slowing in Enterprise Tech Spending
Computing and IT services giant IBM will report earnings today after markets close for trading in New York. As usual, its results and guidance will be seen as a key indicator of the state of tech spending among governments and corporate customers, and thus the overall health of the companies that sell to them.
The consensus view of analysts says that Big Blue will report earnings per share of $3.05 on sales of $24.7 billion, and guide to profits of $3.95 a share on $26.2 billion in the quarter ending in June.
Chris Whitmore, an analyst with Deutsche Bank Securities, said in a note to clients earlier this week that he expects IBM’s sales to come in a little short of that consensus, but with a slightly higher EPS, driven in part by currency-hedging moves intended to take the sting off the effects from the contraction of credit and government austerity measures in Europe.
Whitmore says to expect solid results in IT hardware on the heels of a recent refresh cycle in IBM’s mainframe business. But with only two significant deals announced during the quarter, services results could be light. Ongoing cost-cutting measures, plus a shift toward selling more high-margin software, could boost gross margins to as high as 46.8 percent, up from 45.7 percent in the year-ago quarter. “In aggregate, we believe IBM’s high degree of recurring revs (about 60 percent of profits) and continued cost reduction and operational efficiency initiatives should support healthy margins and solid EPS going forward,” Whitmore wrote. He thinks it’s possible that IBM’s forecast that it will earn $16.70 a share in 2013 may prove a little conservative, and could go as high as $17.
On the hardware front, Whitmore says to pay attention to what IBM executives say about Unix servers in the conference call later today. While Oracle has recently announced a new line of servers based on its SPARC line of chips, and has made some bold claims about their performance, he says the industry contacts he talks to aren’t terribly impressed. “Based on our initial review of the product (and feedback from industry contacts), these new product announcements from Oracle mark a significant step up in the performance of its server products, but do not seem significant enough to change the ongoing competitive dynamics in the industry. As such, we expect IBM’s share gains in the Unix server market to continue. We believe investors will be acutely focused on management commentary on this front.”