IBM Earnings: What to Watch

International Business Machines may be in store for another tough quarter. IBM has failed to grow its revenue for seven consecutive quarters. CEO Virginia Rometty said last quarter that top executives would forgo their 2013 annual bonuses thanks to the poor results.

Now Wall Street is expecting IBM’s sales and earnings per share to drop in the first quarter of 2014, though analysts are expecting the revenue declines to moderate.
On average, 20 analysts expect IBM’s revenue to shrink 2.1% from the year-ago quarter to $22.9 billion, while its earnings-per-share is expected to fall 15.3% to $2.54 cents a share.

IBM plans to report its earnings after the market close today. Here are the key things to watch.
The top line: Last quarter, analysts expected IBM’s sales to shrink 3.6%, but they ended up falling 5.5% as the company’s hardware business eroded faster than expected. Investors are hoping for those declines to moderate, but Sanford Bernstein analyst Toni Sacconaghi wrote in a note previewing IBM earnings that he sees more downside than upside risk. One reason is that IBM completed the $1.2 billion sale of a customer care outsourcing business to Synnex in early February, which should further pressure revenue by about $200 million, estimates Bernstein.

Hardware woes: IBM’s hardware group continues to face major headwinds. Last quarter, revenue of the group, which sells computer servers, storage gear and computer chips, nose-dived 27%, the steepest drop in more than four years.. Like a lot of hardware makers, IBM is struggling to respond to technology advances such as cloud computing, in which customers opt to rent computing gear instead of buying it. Those struggles are likely to continue as IBM will not have a new mainframe to sell until 2015. Its UNIX server business continues to plummet, with no end in sight. And analysts expect new market-share losses in its low-end server business, which it is in the process of selling to Lenovo. China also continues to be a major drag, with country revenue falling 23% last quarter and no major improvement expected in the near term.

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About Doru Somcutean

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