IBM: Color on Quarter
- Stifel notes, in sum, hardware was better, services were mixed, but in line, and software was lower than expected. Growth markets, particularly BRIC countries including China improved q/q, while major markets were mixed. They doubt the current quarter will have much impact on sentiment. Still, they continue to believe IBM represents one of the more attractive longer-term risk adjusted opportunities in our group as we believe the co can stabilize the hardware business in 2015, which combined with trend line growth in services and software can yield ~ 1-2% rev growth and sufficient leverage to generate high single-digit EPS growth and stable FCF; Buy.
- RBC notes IBM reported modest upside to expectations during the Jun-qtr on improved hardware sales and better stability within growth markets. That said, top-line growth remains elusive as secular and cyclical challenges within its end markets are offsetting IBM's initiatives to drive growth in key areas such as cloud (+50% YTD), business analytics (+7% YTD), mobile (+100% YTD), and security (+20% YTD). Although they expect IBM to achieve FY14 EPS guidance of "at least $18.00," it could be due to levers below the operating line (lower tax rate, restructuring savings, share buybacks) in the face of ongoing volume declines. They remain on the sidelines near-term until they see sustainable rev growth.
- ISI Group remains cautious; strategic imperatives will not be enough to offset pressure in core services and software franchises or for IBM to maintain account control among large enterprises. While no obvious fixes exist for an established ~$100bil revenue co, they continue to believe IBM should consider the following to help catalyze growth: 1) Suspend EPS guidance for ~1-2 years to lower expectations and focus on longer-term positioning, 2) Larger, bolder acquisitions to create leadership positions in new areas (vs. string-of-pearls approach), and3) Greater R&D spending on focused initiatives (vs. flattish R&D budget over the last ~10 years despite M&A activity).
- Oppenheimer IBM reported 2Q14 results (revenue of $24.4B, down 1% in constant currency) that indicate its increased focused on software-related growth areas while reducing its hardware focus. Results clearly point to the transformation process it is pursuing while dealing with macro headwinds. Its hardware revenue fell 11% Yo,Y but its blended software contribution rose 4%. BRIC contribution is still down 2% YoY but an improvement from double-digit declines of 2013. The AAPL partnership is likely to encompass areas such as enterprise mobility, security, big data, etc. They view it as an additional step by IBM to move away from hardware toward becoming a software-focused player.
- IBM is down 1% in the premarket after another unimpressive quarter; rev has declined nine straight quarters and efforts to manufacture EPS estimates/targets are disappointing some who are focused on the bigger picture.