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International Business Machines Corporation (IBM) Q4 Earnings Preview: Beat And Q1 Caution?

 January 22, 2013 10:08 AM

(By Rich Bieglmeier) International Business Machines Corporation (IBM) is expected to report earnings after the market closes on Tuesday, January 22, 2013. Wall Street anticipates that Big Blue will earn $5.25 for its 4th quarter. iStock expects the Dow Jones member will report earnings that will beat Wall Street's consensus number. The iEstimate is $5.27 – a 2 cents upside surprise.

IBM is one of the world's most recognized brand-names and operates in five segments: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing.

In the third quarter, all five segments lost ground, -3.9%, -6%, -0.9%, -13.1% and 9.2%, respectively. Ernst & Young's global technology trend and performance review for the third quarter of 2012 suggest the fourth quarter could be difficult.

[Related -International Business Machines Corp. (IBM): Hardware Woes Weigh On IBM Results]

The report said companies "were planning spending cuts due to concern about the so-called "fiscal cliff," a combination of tax increases and government spending

cuts scheduled to take effect in January 2013."  Ernst adds that a contracting Europe, slowing in Asia, particularly China, along with the fiscal-cliff could diminish performance for many of the top, global tech companies.

The report concluded with "Given all these factors, we remain hopeful that the slow or zero aggregate growth we predicted in our 2Q12 report will continue through the calendar year-end — and that growth won't turn negative."

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

Considering IBM's revenue was down 5.4% for the third quarter and 2.87% for the nine months ended September 30, 2012, flat to slightly up would be a positive.

Those who are long Big Blue better hope that Google trends for some of IBM's product line are wrong. For Business Services, searches for Congos are down 8.19% for Q4 2012 compared to Q4 2011.

For Data Management, searches for DB2, IMS, Informix and Optim fell 16%, 16%, 22.9% and 7%, respectively for October – December 2012 versus the same timeframe in 2011. Meanwhile, in Data Warehousing, Infosphere searches were flat year over year.

Google Queries for Lotus QuickR and FileNet in Enterprise Content Management and Data Integration were horrible, down 35% and 20.7%. Meanwhile, z/OS remained flat year-over-year.

We could continue to bore the heck out of you with stats, but one last burning bright spot. The number of times IBM SPSS was Googled in the fourth quarter increased by 17%.

To sum it up, if Google Trends are indicative of interest in IMB's products, the iEstimate will be wrong, and Big Blue will miss.

On the flip side, the US Dollar finished the quarter lower than it started, which could be a plus for IBM's bottom line; although, the greenback began the quarter on a tear higher. In Q3, a strong George Washington hurt the bottom line.

Overall, IBM has beat Wall Street's consensus number in 15 of the last 16 quarters, and one on target result three months backs. Odds are, the iEstimate will be correct in terms of direction and International Business Machines Corporation (IBM) will surpass the consensus. However, we wouldn't be surprised to see management temper expectations for the current quarter based on search trends.



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