IBM's Earnings Need To Beat--And Probably Will
Such an odd thing for Wall Street and the companies reporting this earnings season, particularly IBM.
Here's the classic multi-national tech company, the bellwether for so many different reasons, and at a time when just about everyone is worried about domestic recession, a global economic slowdown, Big Blue doesn't just merely need to meet expectations, it needs to beat them.
If that's the case, if investors "need" IBMto exceed expectations, and many suspect it will, are we really in a recession? Such is the quandary IBM faces when it reports this afternoon. Analysts are anticipating $1.82 a share in earnings on $25.9 billion. If IBM can indeed hit those numbers, it would represent a 21 percent profit increase and a 9 percent revenue increase for a company already doing $100 billion in revenue. Again, recession?
American Technology Research already raised profit and sales estimates this week, thanks to IBM's surging mainframe business. This is important not just for IBM, but it represents strength among enterprise clients. It also could signal strength inside the personal computer industry and technology as a whole. This, of course, follows the surprisingly strong news from Intel as well as the company's uncharasterically optimistic outlook.
Numbers to watch for: around $4.9 billion for the company's Systems and Technology unit, $9.7 billion in Global Technology Services; Global Business Services of $4.9 billion to $5.1 billion; and $5.35 billion in Software, at least according to Canaccord Adams, which expects $1.84 on $25.8 billion. And while that normally would be good news (slower revenue but able to bring more money to the bottomline) it could signal broader issues, including that corporate customers may not be spending the way they used to, or want to. It could be perceived that economic worries are beginning to grip IBM customers, and could signal a broader slowdown if IBM misses on the topline.
Still, for IBM, it's all about the services business, accounting for over half of revenue on a given quarter, and up a strong 17 percent year over year last quarter. And while we're all focused on corporate cutbacks, some on the Street, including Citigroup, don't anticipate any weakness in IBM's services business, an area some companies typically slash during soft economic times. In fact, Citigroup is looking for IBM to beat slightly on both the top and bottom lines.
Keep an eye on IBM's hardware business as well, slowing last quarter compared to the first quarter of 2007, but still managing $5.1 billion in revenue. The company's new z model mainframe also came out this quarter, though released too late to have a meaningful impact on numbers this time around, but something that could be a big deal in quarters to come.
And also pay close attention to guidance: IBM has already offered $8.50 a share for full year 2008, something the company increased last quarter. The Street thinks IBM can do even better, looking for $8.56 on $107.03 billion. If IBM raises again, that could pop shares in a big way. IBM started the quarter around $115, jumped to almost $130, dipped back to $118, and have since been back on the climb. IBM's news is also worth watching as it relates to Hewlett-Packard, Dell and Sun. Today, IBM could break out--and big-- if it can beat and raise.
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