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Will IBM’s Cognitive Solutions & GBS Unit Aid Q1 Earnings?

Zacks

International Business Machines Corporation’s IBM robust performance on the back of expanding cloud, analytics & security portfolio is expected to steal the limelight. Moreover, IBM’s significant investments in “Strategic Imperatives” — cloud computing, mobile, cognitive technologies and (Artificial Intelligence) AI are expected to help the company win customers and drive the top line in the to-be-reported quarter. The company is set to report first-quarter 2018 results on Apr 17.

Click here to know how the company’s overall Q4 performance is expected to be.

Cognitive Solutions — Trend Positive on Growth in Security & Analytics

Cognitive Solutions (solutions software and transaction processing software) revenues increased 3% on reported basis and flat at cc to $5.4 billion. For the first quarter, the Zacks Consensus Estimate for revenues from Cognitive Solutions is pegged at $4.884 billion, up 2.2%, from the actual figure reported in the prior-year quarter.


Cognitive revenues were driven by robust performance from security, Internet of Things (IoT) and analytics offerings. Systems benefited from strong demand for storage and the launch of new z14 mainframe.

Solutions software revenues showed signs of improvement mainly owing to continued focus on building industry verticals and robust performances in areas like Watson Health, Watson Financial Services and Watson IoT offerings.

Analytics results improved on the back of strong growth in Business Intelligence & Data Discovery. Segmental revenues pertaining to Strategic Imperatives were down 3% year over year, while Cloud grew 6%. Cloud as-a-service revenue annual run rate was $2.1 billion.

Security software grew double digits in the reported quarter driven by robust sales of Resilient and QRadar, which addresses areas like endpoint protection, incident response and security intelligence.

IBM stated that increasing number of security threats, growing regulatory compliance like General Data Protection Regulation (GDPR) drove strong demand for its security offerings.

GBS — Consulting Grew, Application Management Down

Revenues from Global Business Services segment were $4.2 billion, down 2% at cc. For the first quarter, the Zacks Consensus Estimate for revenues from Cognitive Solutions is pegged at $4.143 billion, up 1.2%, from the actual figure reported in the prior-year quarter. However, segmental revenues pertaining to Strategic Imperatives grew 7%. Cloud practice surged 17%. Cloud as-a-service revenues annual run rate was $1.3 billion.

Application Management and Global Process Services revenues decreased 3% and 8%, respectively. Consulting revenues inched up 1% driven by IBM’s digital strategy and iX platform, which is up around 40%.

During the quarter, IBM signed a partnership with Blue Prism to combine latter’s robotics processing automation software with IBM services in order to deliver digital workforce solutions.

Cloud, Analytics & Security in Spotlight

Cloud revenues surged 27% on a cc basis from the year-ago quarter. The annual run rate for cloud as-a-service revenues increased 19.8% at cc on a year-over-year basis to $10.3 billion. Cloud revenues on a trailing 12-month basis are now $17 billion, more than 20% of its total revenues.

Security revenues have surged 127% at cc basis to $1.5 billion. Growth was driven by robust performance from security software solutions and strong demand for the pervasive encryption capabilities in new z14 mainframe.

Revenues from analytics (largest of the company’s strategic imperatives) increased 6% at cc to $6.1 billion. Revenues from mobile climbed 21% at cc to $1.3 billion.

Moreover, Strategic Imperatives (cloud, analytics, mobility and security) grew 14% at cc from the year-ago quarter. On a trailing 12-month basis, revenues increased 11% to $36.5 billion and now represents 46% (up from 45% in the previous quarter) of the company’s total revenues.

Zacks Rank and Stocks to Consider

IBM carries a Zacks Rank #3 (Hold).

Amazon.com, Inc. AMZN, Western Digital Corporation WDC and Twitter, Inc. TWTR are some better-ranked stocks in the same sector. All the three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amazon, Western Digital and Analog Devices have a long-term earnings growth rate of 26.81%, 19% and 21.5%, respectively.

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