International Business Machines (IBM, Financial) is scheduled to report earnings after the market closes on Tuesday, Jan. 20. Analysts expect revenue of $24.77 billion and earnings per share of $5.42 for the quarter. For the year, analysts estimate revenue of $93.55 billion with earnings per share of $16.13.
Global Technology Services is the company’s largest business line and a key part of the business to watch in the earnings release. In the third quarter, it generated 41% of revenue for the company. The key aspects of its business include cloud data centers and outsourcing.
The company opened new cloud data centers in London, Toronto, Dallas, Washington D.C. and Singapore. During the fourth quarter, it also continued to integrate its 2013 acquisition of SoftLayer. Overall, the acquisition and new cloud data center openings are part of IBM’s expansion to meet the demand for cloud data services. In 2017, IBM has reported it expects cloud data spend to reach $392 billion and the new cloud data services and centers will help IBM position itself to meet the industry’s growing demand.
Information technology outsourcing is also a major part of IBM’s Global Technology Services business. IBM is a global leader in the outsourcing space due to the advanced research and service capabilities it is able to offer clients across a wide range of industries. In 2014, IBM did some shuffling of its outsourcing businesses which included the completion of a divestiture of its customer care business.
Last year, IBM also made two large divestitures primarily impacting its Systems and Technology business line. The divestitures included the sale of its x86 server business and the sale of Microelectronics. Implications of these divestitures will be a focus for the Systems and Technology business segment in the fourth quarter.
Overall for the fourth quarter, analysts have a revenue estimate of $24.77 billion which reflects a decrease of approximately 10% in comparable quarter revenue. The earnings estimate of $5.42 for the quarter is also showing negative comparable quarter earnings growth. These expectations were presented by management in the third quarter earnings release; however, the fourth quarter numbers may be more dismal than projected.
In 2014, the stock has fallen with the decelerating growth of the company. For the year it returned -14.46%. Year to date in 2015, the stock is down 2.06% with a most recent close of $157.14. Given additional decreases in quarterly growth, the stock could fall further potentially approaching analysts’ low target of $125.
