by Tom Taulli | January 21, 2014 1:23 pm
IBM (IBM) is making headlines yet again, with a report from The Wall Street Journal noting that the company is close to selling its low-end server business. This is likely to be a hot topic of discussion for IBM stock investors … especially considering IBM earnings are slated to be released after the bell today.
The big question from this news: Could the sale help IBM stock get out of its rut? Remember, IBM stock was the only member of the Dow 30 to post a loss last year.
Of course, the actual IBM earnings report will be the biggest indicator of the stock’s prospects.
The good news is that expectations for IBM earnings are fairly tempered, meaning an earnings beat could be in the cards. The consensus is for earnings per share to come in at $5.99 and revenues to hit $28.25 billion.
The bad news, though, is that even if IBM earnings beat the Street, IBM stock could still languish. The fact is that revenues have been unimpressive over the past year. In the third quarter, for example, the company missed expectations by a staggering $1 billion. And other giant tech operators as well, including Oracle (ORCL) and Hewlett-Packard (HPQ), have struggled as well.
Why the weakness? Well, a few factors could be at play for IBM stock and its rivals. To start, there are certainly headwinds in Asian markets, especially in China. For the most part, there are countless strong home-grown tech operators in the region that are becoming serious threats.
Plus, another concern may be politics. That is, Asian countries may be concerned about what has happened regarding the NSA scandal, which could be a convenient excuse to favor domestic vendors. That could definitely weigh on IBM earnings.
Unfortunately, that’s not all. Another factor that could be weighing on IBM stock are the inexorable shifts in technology. For example, cloud is becoming a big force in technology as seen with breakout companies like Salesforce.com (CRM), Workday (WDAY) and ServiceNow (NOW). However, IBM has been a laggard and has only recently been focusing on investments in the category.
Even worse new for IBM stock fans: The company has spent billions on traditional on-premise software companies over the past decade. No doubt, these technologies could be vulnerable to attacks from cloud companies, putting further pressure on revenues. Interestingly enough, a key reason IBM may be unloading the commodity server business is the mega trend of cloud computing, which resulted in fewer purchases from companies (it’s simply cheaper to offload things to data centers). Definitely keep an eye on this aspect of the business in the IBM earnings report.
Of course, IBM isn’t sitting still. To help bolster IBM stock, the company has authorized a $15 billion share buyback. There is also buzz that the company will start to cut back on jobs too.
But such measures will do little to bring back true growth. And so far, IBM has had no answer for this … which could mean that the stock will continue to tread water even if IBM earnings come in above expectations.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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