IBM Gears Up to Report Q2 Earnings: What's in the Offing?

International Business Machines Corporation IBM is set to report second-quarter 2020 results on Jul 20.

The Zacks Consensus Estimate for second-quarter earnings has been steady over the past 30 days to $2.14 per share, indicating a decline of 32.5% from the prior-year quarter.

For quarterly sales, the consensus mark stands at $17.71 billion that suggests decline of 7.6% from the year-ago reported figure.

Notably, the company has a trailing four-quarter earnings surprise of 2.23%, on average.

Factors to Note

IBM’s second-quarter performance is likely to reflect gains from solid adoption of its cloud computing, mobile, analytics, cognitive technologies and AI related solutions.

Synergies from Red Hat acquisition particularly are expected to have bolstered revenues in the cloud segment. Markedly, in the first-quarter 2020, revenues from Red Hat improved 20% (at constant currency) on a normalized basis, with more than 2,200 clients utilizing Red Hat and IBM’s hybrid cloud platform.

Further, IBM has been striving to enhance efficiency of its blockchain solutions, and quantum computing systems and services. In this respect, growing clientele of IBM Q Network remains a positive. Further, incremental adoption of IBM Blockchain-powered Farmer Connect and Food Trust platforms may get reflected in the second-quarter revenues.

Additionally, IBM’s growth in industry verticals like health and security is likely to have driven second-quarter performance.

International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation price-eps-surprise | International Business Machines Corporation Quote

However, increasing expenses on enhancing cloud platform amid stiff competition from Microsoft MSFT Azure and Amazon’s AMZN Amazon Web Services might have weighed on IBM’s profitability in the quarter to be reported. The company currently carries a Zacks Rank #4 (Sell).

Moreover, the coronavirus outbreak may have hindered business prospects in the second quarter, owing to lockdowns and restricted economic activity, globally. Notably, adoption of cognitive applications and transaction processing platforms in March was affected by coronavirus outbreak in the first quarter, which remains an overhang on second-quarter performance.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Noteworthy Developments in Q2

During the second quarter, IBM expanded partnership with SAP SE SAP, and unveiled new intelligent industry-specific solutions to aid customers accelerate digital transformation. Both the companies are particularly focused on enhancing customer’s business value with data-driven intelligent systems.

IBM Services were selected by South Korea-based credit card company, Lotte Card, to modernize its enterprise system to a hybrid cloud infrastructure with IBM Cloud. The gains from partnerships and deal wins are expected to have driven second-quarter top line.

Notably, the company announced its decision to no longer sell or develop facial-recognition software in an effort to curb racial discrimination during the quarter to be reported. Moreover, the company will oppose the use of such technology for mass surveillance and racial profiling.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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