Wall St moneymen on IBM Q4 financials: Don't get your hopes up

Software, Strategic Imperatives found wanting

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IBM revenues are expected to shrink for its Q4 of calendar '18 and into 2019 amid worries the mainframe refresh wave has crested and strategic bets still aren't yet big enough to offset declines in legacy tech.

Ahead of IBM reporting financials tomorrow, influential Big Blue watcher Bernstein outlined headline projections: total turnover is tipped to drop 4.2 per cent year-on-year to $21.6bn for three months ended 31 December. Analysts' general consensus is for sales of $21.8bn.

"IBM previously guided to currency being about a -2 per cent headwind in Q4, however based on current fluctuations since the last guidance, we now estimate currency headwind may be an incremental 0.4 per cent," it said.

Top brass at IBM were optimistic during the prior financial quarter ended September for software sales to rise, hoping that "solutions" and transaction-processing wares would paper over a dreadful Q3 of software sales. They similarly were estimating improvements in Strategic Imperatives.

"We worry that IBM's expectation for overall software growth and 7 per cent Strategic Imperatives growth (cloud, mobile, social, analytics) for Q4 are unrealistic," the analyst added in its IBM earnings preview.

IBM received a revenue boost from its z14 big iron buying cycle in the past year or so but systems and other related transactional revenue is forecast by Bernstein to dip in the period IBM reports tomorrow night (GMT) and for "at least" the first half of this calendar year.

The analyst pointed out that Systems contributed $1bn worth of sales to the Strategic Imperatives in Q4 2017. "In fact, non-systems strategic imperatives growth hovered below 10 per cent throughout FY18, despite a boost in software sales related to the mainframe cycle, and we now think Systems could create an 8 per cent plus headwind for strategic imperatives growth year-on-year in Q4."

The "upshot" is that with Systems adding fewer dollars to those key technologies IBM had bet on, the Strategic Imperatives could grow by low single digits.

IBM notched more than 20 quarters of declining sales until it broke that duck in 2018. But even after a relatively positive run of form, IBM has not yet managed to entirely overcome its challenges: clients falling out of love with outsourcing, buying less hardware and not warming to Big Blue's software portfolio.

The Q4 numbers will be reported this evening UK time. ®

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