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International Business Machines Corporation Message Board

  • mr_dinky_dot_bomb mr_dinky_dot_bomb Jul 5, 2013 9:17 AM Flag

    EU and England Easing Monetary Policy -- Impacts on IBM GAAP Revenue & Expenses

    Will be good in the short run for IBM and other multinationals because it should keep the carry cost of capital investments low. Rates going up in the USA will be a counterbalancing effect since USD should get stronger. So IBM should see actual sales go up but translation back into a stronger dollar will hurt GAAP revenues.

    What mitigates the above is that IBM sources a lot of labor and materials in foreign currency since they, like most US based multinationals, leave foreign cash in place to avoid paying extra taxes by deploying it in the USA. I'm sure that was a consideration that helped move IBM's supply chain to China. That's how it is -- so a lot of IBM expenses and costs will be in foreign currencies and since it works both ways you should continue to see IBM's margins go up even if translated revenue rolls back from currency translation. I can't provide a breakdown but IBM's margins are going up for three reasons:

    1. Cost reduction due to efficiency gains,
    2. The move away from commodity biz to high value and unique software & hardware,
    3. Sourcing cost-of-goods-sold and labor in currencies weakening against the dollar.

    So while revenue will look like it's drooping the flip side of the coin is margin improvement.

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    • "...will IBM miss ?"

      If you're talking about Q2, I think that IBM will meet and probably exceed the $3.79 analyst composite.

      During the 5/24 or 5/29 whichever it was Barklays IT conference, the IBM CFO said that about $450 mil of deals fit their "rolled forward" category and that for a Q2 they usually see about $150 mil roll forward. He credited the big roil over for the weak Q1. He also answered a question about the Q1 shift and acknowledged that it would be a tailwind for Q2.

      Her also expected a pick up 2H and said Q4 Operating EPS should be up double digits.

    • very good but at the end of the day, will IBM 'miss' ?

      Sentiment: Buy

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