IBM earnings preview

IT bellwether IBM is set to report second-quarter earnings after the close of the US stock market on Wednesday. After issuing a disappointing set of results for the first quarter, can Big Blue get back on track?

International Business Machines (IBM) is one of the biggest and best-known IT companies. It is scheduled to announce earnings for its second quarter on Wednesday 17 July after the stock market shuts in New York.

Revenue was a big issue the last time that IBM reported, declining around 5% to $23.40 billion, negatively impacted by the company’s unhedged exposure to foreign currencies, particularly the yen, as well as having income that had been expected for the first quarter rolled over to the next quarter after sales staff failed to close a number of big deals in its Software and Systems segments in the reporting period .

Software and Systems are just two of the five division into which IBM’s business is divided, the remainder being Global Technology Services (GTS) which delivers IT infrastructure services and business process services, Global Business Services (GBS), which offers professional services and application management services, and Global Financing.

CEO Virgina Rometty made changes at the senior executive level in order to try and remedy this failure to close sales in a timely manner, and I would now expect IBM to announce the closure of many of these deals in the second quarter, which should provide a boost to revenue. There remains a question mark over how much is being spent at the enterprise level on IT systems though.

Gartner, a leading research firm, recently downwardly-revised its forecast for global IT spending growth in 2013 from 4.1% to just 2.0%. This softness in IT business spending is likely to pressure revenue growth in the GTS and GBS divisions particularly, although I will be looking out to see whether IBM can compensate for this by delivering an increased pace of growth in newer enterprise such as cloud computing and business analytics.

IBM reportedly undertook job cuts during its second quarter, and it will be interesting to hear how much cost the company projects it can save by doing this.

IDC, another IT research firm, reported in May that global server revenues dropped 7.7% in the first quarter of 2013, the fifth quarter out of the previous six in which the server market has seen a decline in year-on-year worldwide revenues. This would suggest that IBM’s server division may be under some pressure as well.

Analysts polled by Reuters gave a consensus estimate for earnings of $3.77 per share (compared to $3.51 for the same quarter last year). Revenue is expected to decline by 1.5% from $25.78 in Q2 2012 to $25.39 billion.

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