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IBM Q4 Earnings: Cloud, Analytics & Security in Spotlight

Zacks Equity Research

International Business Machines Corporation IBM is set to report fiscal fourth-quarter 2017 results on Jan 18. IBM’s expanding cloud & analytics portfolio is expected to steal the limelight.

The company’s growth will be driven primarily by Big Data & business analytics, cloud computing, mobile, security and social business going ahead. In the third quarter, revenues from “Strategic Imperatives” grew 10% year over year and now forms over 45% of IBM’s revenues.

Cloud revenues grew 20%, security business revenues surged 49% while the mobile business registered growth of 7%. Cloud revenue on a trailing 12-month basis is now over $15 billion, almost 20% of the company’s total revenues.

Security revenues have advanced 49% at constant currency (cc) to $700 million. Growth was backed by robust performance from security software solutions and strong demand for the pervasive encryption capabilities in new z14 mainframe.

Revenues from analytics (largest of the company’s strategic imperatives) increased 5% at cc to $5 billion. Revenues from mobile climbed 7% at cc to $1.2 billion. Analytics results improved on the back of strong growth in Business Intelligence & Data Discovery.

Cloud is included in the Cognitive Solutions (including Watson) and Global Business Services (GBS). Revenues from Cognitive Solutions (solutions software and transaction processing software) revenues increased 3% at cc to $4.40 billion. The figure surpassed the Zacks Consensus Estimate for Cognitive Solutions of $4.17 billion.

In September, IBM launched new unified data system, which is supported by its DB2 technology and is built on IBM Power. We also note that IBM began shipment of its z14 mainframe in September. The server market rebound in the second quarter, as reported by Gartner and International Data Corporation (“IDC”) bodes well for the company.

Segmental revenues pertaining to Strategic Imperatives and Cloud grew 5% and 10%, respectively. Cloud as-a-service revenue annual run rate was $2 billion.

Revenues from Global Business Services segment were $4.09 billion. Though it was down 2% at cc, it fared better than the Zacks Consensus Estimate of $4.06 billion. Signings improved for the third consecutive quarter, up 15%. Segmental revenues pertaining to Strategic Imperatives grew 11%. Cloud practice surged 35%. Cloud as-a-service revenue annual run rate was $1.2 billion.

Recently, IBM signed a five-year partnership with Volkswagen AG to develop new mobility services that will utilize its cloud and cognitive capabilities to create highly personalized digital experiences for vehicle drivers.

The cloud computing market bodes well for IBM. Most recently, Forbes mentioned that the cloud computing market will be worth $162 billion in 2020 from $67 billion in 2015, at a CAGR of 19%.

This is well reflected in the Zacks Consensus Estimate. For the fourth quarter, the Zacks Consensus Estimate for revenues from Cognitive Solutions and GBS is pegged at $6.378 billion and $4.235, up 6.3% and 0.3%, respectively, from the actual figure reported in the prior-year quarter.

At present, IBM carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stay tuned as we bring you more on IBM ahead of the upcoming earnings announcement.

International Business Machines Corporation Price, Consensus and EPS Surprise

International Business Machines Corporation Price, Consensus and EPS Surprise | International Business Machines Corporation Quote

Stocks to Consider

Here are some stocks that, per our model, have the right combination of elements to post an earnings beat this quarter:

Western Digital Corporation WDC, with an Earnings ESP of +0.83% and a Zacks Rank of 2 (Buy).

Seagate Technology PLC STX, with an Earnings ESP of +2.51% and a Zacks Rank of 2.

Helmerich & Payne, Inc. HP, with an Earnings ESP of +11.62% and a Zacks Rank of 3.

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