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IBM’s Expectations Rise Ahead of Q3 Earnings
Posted by: Muhammad Bazil (IP Logged)
Date: October 28, 2012 11:09AM

With its third quarter earnings just around the corner, IBM (IBM) has heightened the tempo in light of positive forecasts by a reasonable section of analysts. The information technology behemoth has had a steady fiscal year and profits are expected to rise despite a widely speculated revenue growth slowdown.

The S&P 500 component is expected to post profits of $3.61 per share, representing a 10.1 percent year-over-year rise from its actual earnings last fiscal year. One notable characteristic of IBM is that it has managed to trample over estimates for the last four quarters, coming along as an outperformer. Another positive indicator ahead of the third quarter earnings report slated for Tuesday (at the time of writing) is the remarkable rise in IBM’s stock price in the past third quarter. In the course of the third quarter, specifically July 17 to Oct. 10, stock price has risen 12.1 percent. Nonetheless, IBM’s top line is expected to shrink 3 percent. This expected decrease in revenue builds on the 3.3 percent dip in revenue that was recorded during the second quarter, signaling a possible slowdown in quarterly revenue growth over the fiscal year.

Commendable Momentum

This sneak peek into the earnings estimates reveals an interesting trend – IBM’s earnings have been on a steady increase during this fiscal year. Despite the fact that its revenue growth has taken a negative turn in the past, the tech bigwig has managed to turn impressive profits and is expected to do so again. This suggests that IBM observes controlled spending alongside other canny cost-cutting strategies.

All the same, these increased expectations, coupled with Q2’s impressive earnings, imply that IBM’s positive momentum during the fiscal year has caught the attentions of analysts. Indeed, the IT heavyweight has made significant inroads into some of the key segments of the global market. This is particularly so with its PureSystems product that has gained a lot of popularity among managed service providers. In actuality, a press release published by IBM reveals that the tech company is making notable progress with this product, highlighting the fact that most managed service providers (MSP) currently have a slant toward IBM’s Puresystems product.

Another notable move that further highlights IBM’s increased momentum is its decision to team up with AT&T to create a groundbreaking cloud service for businesses. Details of the move, which were documented in IBM’s press releases, reveal that IBM will highly benefit from the cloud service. For starters, the new product will direct its attention towards the Fortune 1000 companies, all of which happen to be current customers of AT&T. As such, this provides a leeway for the product. The cloud service, which will use private networks rather than public networks, also appeals to the direct needs of its target market. How is this so? By settling for private networks, the cloud service will be able to revamp security for its clients. Similarly, most Fortune 1000 companies love privacy and availability. IBM and AT&T’s new service will flaunt these two essential attributes, alongside other desirable characteristics that appeal to the corporate market.

A Competitor’s Thickening Share of Negatives

Hewlett-Packard (HPQ), which was once deemed a formidable competitor to IBM, is still latched on to an alarming downward spiral. A recent research by Gartner thickens its share of controversy. The study reveals that China’s Lenovo (LNVGY) is currently the world’s largest PC maker, controlling 15.7 percent of the market as opposed to HP’s 15.5 percent. While an alternate report by International Data Corp. (IDC) still places HP at the top, it only does so by less than half a percentage point. IDC, which is Gartner’s competitor, details Lenovo’s increased dominance over the global PC market.

Lenovo, which bought IBM’s PC division in 2005, has made significant inroads into HP’s backyard. HP currently has to grapple with disappointing earnings, a shrinking market share and an uncertain PC market. This provides a leeway for IBM. Similarly, PCs are slowly becoming a thing of the past, signaled by the increased popularity of more portable smartphones and tablets.

Stocks Discussed: IBM, T, HPQ,
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