IBM (NYSE:IBM), the world’s largest computer services firm, is set to release its Q3’11 earnings on 17th October, Monday after market close. On Wednesday, IBM’s stock price reached an all-time high of $188 as investors turned to the big blue for a safer, less volatile investment in the otherwise turbulent tech sector. In fact, IBM has gained 27% this year making it the best performer of the Dow Jones Industrial Average while most its major competitors – including Oracle (NASDAQ:ORCL), HP (NYSE:HPQ) and Microsoft (NASDAQ:MSFT) – have negative returns year-to-date.
In spite of its meteoric rise (on a relative basis of course), most analysts still maintain a strong buy/outperform rating for IBM. In view of all these factors, there are lots of expectations from IBM earnings and it remains to be seen what IBM has to say.
We currently have a $182 Trefis price estimate for IBM, about in line with the market price, based on our DCF valuation model. Below we look that the major factors to look at in the IBM earnings release on Monday.
IBM’s Continued Revenue and Profit Growth vs Macroeconomic Outlook
IBM’s revenue has increased for four consecutive quarters reaching $26.7 billion in Q2’11. Also the company’s profit has been on the rise for three quarters in a row. In the most recent quarter, profit increased 8.2% year over year.
It will be interesting to see whether IBM manages to surprise its investors yet again or if the macroeconomic outlook has indeed become way too grave to weigh down the tech sector’s top performer as well.
Smarter Planet and Cloud Computing
IBM has focused big time on its Smarter Planet initiatives in recent times and has released a number of new solutions targeting various different industries as part of the initiative. At its core these solutions are based around IBM’s industry leading analytics which help clients refine their processes by utilizing the data available to them or they are able to capture using IBM new solutions.
These initiatives have done well so far as evident from IBM’s performance over the past quarters. It will be interesting to see what other ‘Smarter initiatives’ IBM is working on and what are its plans for extending the reach of existing ones.
The Big Blue is also making head ways into Cloud computing – the technology of the future – and has announced a number of new offerings as part of its SmartCloud services covering almost everything from private to public cloud with plenty to offer to both small and large enterprises. As more organizations take to the Cloud – research firm Forrester predicts the private cloud market to rise from $7.8 billion in 2011 to more than $15 billion in 2020. This is a huge opportunity for Big Blue. [1]
Watson
Another important announcement to look forward will be IBM’s Watson supercomputer which shot to fame after its stint at the popular TV show Jeopardy where it defeated human players in a game of wits. Watson, as the supercomputer is now generally referred to, has long been rumored to make its way into the health care industry where there is arguably limitless potential for its analytical capabilities.
We look forward to hearing what the preliminary prognosis for Watson from his creators.
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