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What to Expect from IBM’s Fourth-Quarter Earnings

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IBM’s Q4 earnings

International Business Machines (IBM) is scheduled to announce its fourth-quarter earnings on January 22 after the market closes. For the fourth quarter, Thomson Reuters, a financial estimates platform, expects IBM to report revenue of $21.75 billion and non-GAAP EPS of $4.84.

As the below chart shows, after years of decelerating revenue growth, IBM finally came out of its slump in the fourth quarter of 2017 when it posted revenue of $22.5 billion, a YoY increase of 3.4%. The company’s quarterly revenues continued to grow until Q2 2018. However, the company once again reported lower-than-expected revenues in Q3 2018. Revenues of $18.76 billion not only lagged the consensus estimate of $19.10 billion but also declined 2% on a YoY basis.

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IBM’s initiatives and cloud deals

With 60 data centers across 18 availability zones, IBM is aggressively trying to enhance its presence in the cloud space. In Q3 2018, IBM’s cloud revenues surged 13% on a YoY basis to $4.6 billion. Recently, IBM entered a partnership with Juniper Networks (JNPR) wherein it plans to integrate its cloud offerings with Juniper’s existing IT infrastructure. With this $325.0 million deal, IBM will assist Juniper to not only manage multiple cloud environments but also aid in cost reduction and ramp up its journey to the cloud.

The company also partnered with Vodafone (VOD) wherein IBM will offer its AI and automation tools to networked businesses. This eight-year deal worth $550.0 million is slated to expand IBM’s presence in Europe (IEV). These cloud deals could help IBM improve its position in the cloud space (IYW), which is dominated by Amazon’s (AMZN) AWS (Amazon Web Services) and Microsoft’s (MSFT) Azure.

IBM’s legacy mainframes continue to gain traction        

Increased adoption of the z14 mainframe power-based systems and strong flash sales drove 2% growth in the company’s Systems segment, which reported $1.7 billion in revenues. According to IBM, its “Z revenue grew 6% year-to-year on 20% MIPs growth,” driven by strong demand of the z14 mainframe. MIPS is a widely used measure of computing performance and related costs. Increased MIPS reflect the relevance of the mainframe to IBM’s clients.

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