An Analysis of IBM – Earnings Preview

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By Chris Hillman on July 22, 2014 Technology & Software

Where International Business Machines Corp. (NYSE:IBM) is optimistic about the partnership deal that it made with Apple (NASDAQ:AAPL), the company still needs to go a long way if it wants to improve its earnings. The growth in the profits and earnings has slowed down over the last few years especially after the company laid its foot into businesses that are known for high-growth: security and mobile, big data analytics and cloud computing. The company’s growth in the field of cloud computing was received positively, even after the company bore a huge profit loss by losing the contract with CIA. The contract with CIA was won by Amazon (NASDAQ:AMZN), even though IBM’s bidding was cheaper than Amazon’s.

The revenue figures of IBM (NYSE:IBM) from cloud computing operations reached $4.4 billion by the end of the year 2013, and the company is now focusing to bring the profits to $7 billion by the end of the next year, 2015.

Ginni Rommetty, the Chief Executive Officer of the company, has made cloud computing operations a priority and several acquisitions have been made in the last few years to expand the operations. However, the company’s overall portfolio still lags behind as those acquisitions contribute to a small percentage only. According to Thomson Reuter, revenues of IBM (NYSE:IBM) will reach $97.4 billion for the fiscal year 2014. The analysts further stated that the company will earn almost $4.29 per share. IBM (NYSE:IBM) started its cloud computing operations very late; however, the company is now back on track and ready to seize its share of the gains.

The company is moving in and out of the businesses way too often, and it will not be wrong to say that the company has divested a lot during this past quarter: it divested from customer care business which was responsible for generating almost $1.2 billion annual revenues. The company says that it only divests from operations that do not fit in the company’s vision and focused long-term goals. The company has divested almost $20 billion in annual revenues since 2000, $6 billion alone since 2012. IBM is focusing on its cash, margins and profits right now.

Rumors have it that IBM will sell its semiconductor business in the near future as it is running low, and has been running low for quite some time now. Although IBM sold chips to Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) at its peak time, but the semiconductor business generates only 1 percent of the total company’s profits

On the other hand, the company disclosed to the public that it will invest almost $3 billion in development and research programs for its chip technology. The research will be focused on improving the semiconductors and making them more effective for operation like big data systems and cloud computing.

IBM operates its business in three sectors: software, services and hardware. Currently, the software sector of the company is running the most profitable as it generates 50 percent of the total profits of the company. The company gave its shareholders $16.28 per share by the end of 2013, and now the company is committed to increase the earnings to $20 per share for the year 2015. As for the earnings of 2014, IBM is confident that the figures will reach at least $18; however, Wall Street predicts earnings of $17.88 per share.