IBM on Deck, Expected to Deliver
With clouds of macroeconomic uncertainty swirling round the tech sector in recent months, the pressure's on IBM to deliver good numbers. Chip giant Intel(INTC) , for example, which also reports Tuesday afternoon, recently lowered its outlook, citing the effects of a tough economic environment.
Investor sentiment around IBM, however, has been positive heading into its third-quarter numbers, with the company's shares enjoying a modest rally.
"Despite macroeconomic headwinds including a stronger USD, and based on our supply chain checks indicating software and services strength, we anticipate inline revenue and a slight beat in EPS," wrote Sterne Agee analyst Shaw Wu, in a note released on Tuesday. "For its outlook, we believe the company will likely back its raised 2012 view."
In July, IBM raised its expectations for fiscal 2012 earnings to at least $15.10 a share from its prior forecast at least $15 a share
The Armonk, N.Y.-based Dow component also eased past analysts' earnings forecast when it reported its second-quarter results back in July, although currency pressures weighed on the company's top line.
Analysts surveyed by Thomson Reuters expect Big Blue to post third-quarter revenue of $25.4 billion and earnings of $3.61 a share, compared to $26.2 billion and $3.28 a share in the prior year's quarter.
Sterne Agee's Wu predicts that software and services will lead the way for IBM.
"In terms of IBM's business units, we are picking up that its sales force and distribution partners continue to focus on its software unit where we anticipate better performance because of its strong portfolio of offerings, higher margins, faster payback and shorter sales cycles," he wrote. "In its services business, we are encouraged by positive commentary and strong bookings from Accenture(ACN) and SAP(SAP) . Moreover, it appears that HP(HPQ) is losing share with its restructuring note helping."
Whereas rival HP is in the throes of a massive corporate overhaul, IBM completed its own metamorphosis years ago, successfully shifting its focus from low-margin hardware to high-margin software and services.
Software accounted for 24% of IBMs overall revenue during its second quarter, with services making up 57% of the company's overall sales.
A recent survey from of Chief Information Officers (CIOs) by Citi Research also pointed to IBM's services strength. "Our incremental analysis of data from our survey of 260 CIOs in 3Q12 indicates that IBM and Computer Sciences (CSC) led the list of wallet share gainers while HPQ, Xerox(XRX) and Deloitte led the list of wallet share losers," wrote Citi analyst Ashwin Shirvaikar. "We reiterate our Buy on IBM and Sell on HPQ."