What To Expect From IBM’s Second Quarter Earnings

by Trefis Team
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IBM (NYSE:IBM) is scheduled to report its Q2 2018 earnings on July 18. The tech giant has reported revenue growth in the last couple of quarters after several quarters of mixed results and revenue declines. In the March quarter, IBM reported a healthy 5% increase in net revenues to $19.1 billion, which was offset by slightly lower gross margins. A key growth area for IBM in recent years has been its Cognitive Solutions segment, while the company’s core Technology Services and Business Services segment revenues have largely stagnated. Global Business Services revenues have declined 2-3% in the last few years despite an increase in new signings. Similarly, Technology Services and Cloud Platforms revenue, which includes infrastructure services, technical support services, and integration software, also declined in low single digits through 2017. We forecast this trend to continue through the current year.

Keeping up the trend from recent quarters, solid revenue growth from Cognitive Solutions segment should help drive company-wide top line growth through the quarter. Strong revenue growth is expected to be slightly offset by a limited increase in profit margins, due to the increase in operating costs, particularly SG&A expenses. Consequently, the company’s net income and EPS are expected to be only around 3-4% higher on a y-o-y basis to $2.8 billion and $3.07 for the quarter, respectively. Our forecasts are in line with the consensus EPS. We have summarized our Q2 FY’18 expectations, based on the company’s guidance and our own estimates, on our interactive earnings preview dashboard for IBM. If you think differently, you can change expected segment revenue, gross margin and net income margin for IBM to gauge how changes will impact its expected EPS for the quarter.

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