IBM's 3Q earnings likely to extend growth streak

IBM's 3rd-quarter earnings expected to show technology giant is still growing in tough economy

Associated Press

SAN FRANCISCO (AP) -- IBM Corp.'s third-quarter results are expected to extend the technology company's nearly decade-long streak of earnings growth.

WHAT TO WATCH FOR: The numbers, scheduled to come out Tuesday after the stock market closes, will probably illustrate the stability of IBM's strategy, which emphasizes selling software and a variety of technology services to businesses and government agencies.

The company, which is based in Armonk, N.Y., locks many of its customers into contracts that guarantee regular payments even in tough economic times. That provides IBM with some insulation from the economic uncertainty that has made it tougher for other technology companies to close deals, particularly in Europe and in China, in recent months.

It also helps that IBM no longer has a direct connection to the personal computer industry, where a sales slump has been hurting the makers of microprocessors and desktop and laptop machines.

The business software and technology services sector also generate higher profit margins that selling computer equipment, another advantage working in IBM's favor.

All those factors are why analysts are confident that IBM's earnings for the three months ending in September will at least match the projections that influence investors' decisions on whether to buy or sell a stock. If IBM hits the target set by analysts, it will be the 39th consecutive quarter in which IBM's earnings have been higher than the same time in the previous year.

IBM also could be benefiting from the woes of Hewlett-Packard Co., which also sells business software and consulting services. HP's financial condition has been deteriorating, trigging an extensive reorganization in an attempt to turn things around. Those factors might cause some corporate customers to consider with a vendor such as IBM that is on more stable footing.

The biggest question about IBM's third-quarter performance center on its revenue for the period. Like other companies that have a lot of customers outside the U.S., IBM is being hurt by the weakening euro because sales made in that currency are converting into fewer dollars than last year.

WHY IT MATTERS: IBM is the world's largest technology-services company. Its results provide a gauge of businesses' appetite for technology spending.

WHAT'S EXPECTED: Analysts, on average, are expecting earnings of $3.61 per share on revenue of $25.4 billion, according to a poll by FactSet. The earnings estimate excludes the costs of past acquisitions and certain other items unrelated to IBM's ongoing business.

LAST YEAR'S QUARTER: IBM earned $3.28 per share, after subtracting certain items, on revenue of $26.2 billion.

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