Thursday, July 14, 2011

IBM Corp. (NYSE: IBM): Q2 Earnings Preview 2011

International Business Machines Corp. (NYSE: IBM), the world's largest computer-services provider, is scheduled to release second-quarter earnings after the closing bell on Monday, July 18, 2011. Analysts, on average, expect the company to report earnings of $3.03 per share on revenue of $25.35 billion. In the year ago quarter, the company reported earnings of $2.61 per share on revenue of $23.72 billion.

International Business Machines Corporation, often considered a technology bellwether, develops and manufactures information technology products and services worldwide. Its Global Technology Services segment offers IT infrastructure and business process services, such as strategic outsourcing, integrated technology, business transformation outsourcing, and maintenance. The company dominates mainframe and server market.

In the preceding first quarter, the Armonk, New York-based company's net income was $2.9 billion, or $2.31 per share, compared to $2.6 billion, or $1.97 per share, in the year-ago quarter.  Revenue grew 8 percent on actual rates to $24.6 billion from $22.85 billion in the first quarter of 2010. Analysts, on average, expected the company to report earnings of 39 cents per share on revenue of $857.49 million.  

At its last earnings call in April, IBM lifted its expectations for full-year 2011 GAAP earnings per share to $12.73 from its previous outlook of $12.56 per share and operating (non-GAAP) earnings per share to $13.15 from its prior guidance of $13.00. The 2011 operating (non-GAAP) earnings exclude $0.42 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance..

The company's goal for 2015 is to reach $20 of earnings per share. The company’s projections for 2015 assume about 5 percent in annual sales growth. IBM plans to save $8 billion through productivity gains by 2015, while free cash flow should reach $100 billion over that span. The company plans to give 70 percent of the cash flow to shareholders.]

The company recently unveiled new software and services to rapidly analyze massive amounts of data from sources like the Internet, further expanding the tech giant's footprint in the fast-growing market. The company also said it would invest $100 million in continued research on technologies and services that help businesses manage and use data as the data grow in diversity, speed and volume. Investment in analytics has increased sharply in recent years as companies use more powerful technology to organize and analyze the influx of data generated on the Web and on devices like smartphones. IBM has invested more than $1 billion in research around analytics software and also has spent $14 billion on 24 acquisitions over the past five years. The company, which doesn't disclose how much it currently makes from analytics, expects to generate $16 billion in revenue from the field by 2015.

Acquisitions are a key part of IBM's growth strategy. The company has been investing in acquisitions to build its skills and technology in support of growth initiatives such as business analytics, and cloud computing. Last year, Chief Executive Officer Sam Palmisano said that he plans to spend $20 billion on acquisitions in the next five years. IBM has also benefited from heavy investments in emerging countries.

IBM is poised to benefit from the growth in corporate spending on information technology. Global spending on information technology is expected to grow 7.1 per cent this year to $3.672 trillion, according to research firm Gartner. It had previously forecast 5.6 per cent growth this year. 

During the quarter in review, the company boosted its quarterly dividend by 15% to 75 cents a share from 65 cents in the previous quarter. The board also authorized $8 billion in additional funds for the company's stock repurchase program.

Full Disclosure: None.
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