Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Tech Earnings Reports Get Under Way With IBM and Intel

Computing giant IBM and Intel, the world’s largest maker of chips, will both report quarterly earnings today after the close of markets in New York. Both have been under pressure, as the sectors of the tech economy they rely upon are sputtering.

According to analysts surveyed by Thomson Financial, Intel is expected to report earnings of 40 cents on sales of $12.9 billion, and to offer guidance of 50 cents on $13.7 billion in sales for the quarter ending in September.

With the market contracting for personal computers, Intel’s biggest market segment, analyst Michael McConnell of Pacific Crest Securities said in a note to clients Tuesday that he’s “skeptical” about a recovery in that business in the second half, and that could raise some risk that Intel could cut its guidance. “We believe Q3 guidance is highly dependent on how aggressive Intel is willing to be with its component builds, despite weak PC sell-through year to date,” he wrote.

Here’s another issue: With notebook shipments on the decline, Intel has been scrambling to get its chips into tablets and smartphones. That could cause a revenue mix problem, McConnell argued: “We view the content trade-off between a $99 per unit market (notebooks) and a $20 to $50 per unit market (tablets) as a potential challenge to Intel’s ability to manage its product mix and overall average selling prices,” he wrote.

One other thing to watch: Intel’s capital spending plans. With PCs selling so badly, the company may not be able to justify spending $12 billion. McConnell expects Intel to cut back on its spending plans by as much as $2 billion.

Finally, it’s worth noting that this will be the first quarterly report since Brian Krzanich took over as Intel’s CEO.

As for IBM, pressure is going to be on the company to deliver better results than last quarter, when it posted an unexpected and uncharacteristic miss.

The consensus view of analysts calls for Big Blue to report EPS of $3.77 on sales of $25.4 billion. Chris Whitmore, an analyst with Deutsche Bank, said he expects to report sales that come up “light,” but per-share earnings that are in line with those expectations.

The revenue shortfall he expects will likely be attributed to weak economic conditions in regions like Southeast Asia and Latin America, and a generally conservative spending stance by corporate CIOs around the world. On top of that, he expects currency exchange rates to bring a headwind that could eat into earnings slightly. Oracle’s recent results, Whitmore said, amount to a negative “read through” for IBM on both the software and hardware fronts.

The good news is that IBM is good at cutting costs, which, when combined with recurring revenue that amounts to 60 percent of its profits, puts its projection that it will earn $16.70 a share this year on a solid footing, despite the weaker environment.

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