IBM Shapes Up for Software Growth
The IT giant, which releases its numbers after market close, often sets the tone for tech earnings season, as evidenced by the company's last quarter when IBM cited strength in emerging markets and enterprise software.
|IBM reports its first-quarter results after market close on Tuesday.|
With software giant Microsoft(MSFT) , chip makers AMD(AMD) and Qualcomm(QCOM) and storage giant EMC(EMC) all on deck to report results this week, tech investors will be closely monitoring IBM's numbers.
Software, in particular, looks set to be another big growth driver for IBM. "Based on our supply chain checks, we anticipate in-line revenue and a beat on EPS, driven by software and share gains in high-end servers, offset by mixed trends in services," explained Shaw Wu, an analyst at Sterne Agee, in a note. "For its outlook, we anticipate the company to modestly raise its previous view of at least $14.85 in EPS for 2012."
Analysts surveyed by Thomson Reuters expect IBM to report first-quarter revenue of $24.77 billion and earnings of $2.65 a share, up from $24.6 billion and earnings of $2.41 a share in the same period last year.
Sterne Agee's Wu expects that IBM's software business, which accounts for 23% of its total revenue, to be boosted by its business analytics, enterprise cloud, and Smarter Planet initiatives. "We believe this richer mix of software should allow the company to post an EPS upside," he added.
Underlining this effort, IBM launched its PureSystems offerings last week; packages of servers, storage, networking and tightly-integrated analytics software. The company also purchased privately-held sales analytics specialist Varicent.
During fiscal 2011, IBM's analytics business grew 16% year-over-year, while Smarter Planet, which aims to boost the efficiency of technologies such as power grids and traffic systems, grew almost 50% over the same period. IBM's cloud revenue more than tripled in fiscal 2011.
IBM shares, which recently hit a new all-time high, were up $3.60, or 1.78%, to $206.32 on Tuesday.
Bank of America Merrill Lynch also highlighted the broader attractiveness of tech stocks, including IBM, in a note released on Tuesday. "The NASDAQ Composite has had a significant technical breakout spanning eleven years," explained technical research analyst Mary Ann Bartels. "It is common for a breakout to be tested and we believe any correction to test the breakout is a buying opportunity."