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IBM Gears Up to Report Q4 Earnings: What's in the Offing?

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International Business Machines Corporation IBM is slated to report fourth-quarter 2020 results on Jan 21, 2021.

In the third-quarter earnings conference, management had stated that fourth quarter is a seasonally strong quarter.

Robust pipelines across hybrid cloud and data platform, AI solutions, in Cognitive Apps business driven by strength in Cloud Paks and Security, cloud-based transformation services in the Global Business Services (GBS) segment and App modernization offerings, are expected to get reflected in fourth-quarter revenues.

Also, management has been banking on advancement in Red Hat “actual backlog growth.” Moreover, gains from rapid uptake of IBM z15 are anticipated to have acted as a tailwind.

The Zacks Consensus Estimate for fourth-quarter earnings of $1.77 per share has been steady over the past 30 days. The figure indicates a decline of 62.4% from the prior-year quarter.

For quarterly sales, the consensus mark stands at $20.51 billion that suggests a decline of 5.8% from the year-ago reported figure.

Notably, the company has a trailing four-quarter earnings surprise of 1.71%, on average.

Factors to Note

IBM’s fourth-quarter performance is likely to reflect gains from solid adoption of its hybrid cloud computing capabilities, mobile, analytics, cognitive technologies and AI related solutions.

Synergies from Red Hat acquisition particularly might have contributed to the cloud segment’s revenues.

International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation Price and EPS Surprise
International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation price-eps-surprise | International Business Machines Corporation Quote

Further, the company’s spin-off of its legacy Managed Infrastructure Services business in an attempt to facilitate digital transformation of clients is a testament to IBM’s efforts to accelerate its hybrid cloud growth strategy.

Moreover, IBM, currently carrying a Zacks Rank #3 (Hold), has been striving to enhance efficiency of its blockchain solutions, and quantum computing systems and services. In this respect, growing clientele of IBM Q Network remains a positive. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nevertheless, increasing expenses on enhancing cloud platform amid stiff competition from Microsoft MSFT Azure and Amazon’s AMZN Amazon Web Services might have weighed on IBM’s profitability in the quarter to be reported.

Moreover, the coronavirus crisis led to restricted economic activity and decline in IT spending globally, which may have hindered business prospects in the fourth quarter.

4 Key Acquisitions in Q4

During the fourth quarter, IBM acquired Instana to boost management of applications’ performance across hybrid cloud environment and enhance its AI-based automation capabilities.

The company also announced the acquisition of TruQua Enterprises, LLC for undisclosed sum. TruQua acquisition will aid IBM customers to deploy SAP SE SAP solutions such as S/4HANA to automate and modernize financial processes such as cash flow and budgeting.

The tech giant also announced the takeover of Canada-based Expertus Technologies Inc for an undisclosed sum to boost its digital payments offerings.

Moreover, the company announced the buyout of Finland-based cloud-focused start up — Nordcloud. The acquisition is expected to help IBM gain a larger share of the cloud professional services market.

Although gains from latest buyouts are expected to drive the top line over the longer haul, increasing spend on product enhancements might have weighed on margin expansion in the fourth quarter.

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