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Why IBM Expects Growth in 4Q17

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z14 mainframe to drive growth in 4Q17

So far in this series, we have discussed IBM’s (IBM) 3Q17 earnings, as the company continued its trend of no revenue growth.

IBM expects its 4Q17 revenues to be $22.0 billion–$22.1 billion for 1.5% growth from 4Q16. IBM’s guidance for 4Q17 exceeded analysts’ expectations for the company’s revenues to reach $21.8 billion.

IBM’s CFO, Martin Schroeter, noted that revenues in the current quarter are expected to improve by $2.9 billion on a sequential basis on the back of the z14 mainframe. z Systems grew 62.0% and contributed significantly to IBM’s Systems segment, which grew 10.0% to $1.7 billion.

If IBM reports revenue growth in the current quarter, it would mark the end of 22 quarters of straight revenue decline.

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Market’s skepticism on IBM’s growth

Josh Olson, an analyst at Edward Jones & Co., shared a similar opinion on IBM and stated, “The mainframe is going to drive a lot of the positive growth in the fourth quarter.” He added, “When you’re selling mainframes, you’re also selling a lot of software and services with that.”

Because the mainframe business is cyclical, IBM’s sole dependence on server sales to post revenue growth may not be sustainable. Instead, IBM could focus on its Strategic Imperative segment to achieve sustainable growth.

Market and industry analysts are closely looking into IBM’s Strategic Imperatives segment to assess IBM’s turnaround and its sustained growth.

This analysis for IBM was reflected by Daniel Ives, head of technology research at GBH Insights, who said, “They definitely have some potential going into 2018 in certain parts of the business, and you couldn’t say that a few years ago.” He added, “It’s an execution story and 2018 will be a huge proving year for Rometty and IBM.”

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