Earnings Preview: IBM to report 3Q results

By JORDAN ROBERTSON

posted: 45 DAYS 3 HOURS AGO

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SAN FRANCISCO -IBM Corp. reports third-quarter earnings after the market closes Thursday. Below is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Armonk, N.Y.-based IBM has managed to keep boosting profits despite the recession and slumping sales, a fact that speaks to the company's reliance on technology services and software. Those are two things many companies are still willing to pay for, because they help save money by offloading or automating information-technology chores.

IBM is expanding into areas like "smart" power grids to help utilities infuse more computing intelligence into their systems. Those deals can carry higher profit margins than other services deals because of the specialty skills needed.

Also, IBM is a relentless cost-cutter, shifting jobs to parts of the world where labor is cheaper and the company is signing more deals.

All of those were reasons why IBM was able to surprise Wall Street in July by raising its full-year earnings guidance to at least $9.70 per share, up from at least $9.20 per share. The company's gross profit margin, another key measure of its ability to control costs, increased in 19 of the last 20 quarters on a year-over-year basis.

In July IBM bulked up its most profitable division — software — with the $1.2 billion acquisition of Chicago-based SPSS Inc., whose technology mines data to predict things like how customers will respond to a sales pitch.

IBM's numbers are in some ways a gauge of the health of corporate spending on technology, but only in very specific areas, like outsourcing and tech services and software that will help those companies save money over the long term.

BY THE NUMBERS: Analysts expect IBM to earn $2.38 per share on $23.38 billion in sales. In the same quarter last year, IBM earned $2.04 per share on $25.3 billion in sales.

ANALYST TAKE: Keith Bachman, an analyst with BMO Capital Markets, wrote in a note to clients Monday that he believes IBM's stock has underperformed recently because of investor fears about the company's ability to boost revenue. However, with an improving economic climate, "IBM should be able to show some amount of revenue upside compared with Street estimates in the next two quarters (more likely the December quarter)," Bachman wrote.

Martin Reynolds, a vice president and research fellow at Gartner Inc., said part of IBM's appeal to cash-strapped outsourcing clients is they get to unload certain tech duties onto "somebody who knows how to mine out all the costs."

"IBM is selling ways to cut costs, improve margins and get better," he said.

STOCK MOVEMENT: IBM's stock started July at $104.84 and rose to $119.61 at the end of September. It has since continued climbing, hitting its 52-week high of $127.39 Tuesday.

2009-10-13 14:16:46