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Ahead of IBM's Q1 Earnings: Hybrid Cloud & GBS in Focus

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International Business Machines Corporation (IBM - Free Report) is slated to release first-quarter 2021 results on Apr 19, 2021.

The company’s first-quarter results are likely to reflect healthy uptick in the company’s hybrid cloud services, mobile, analytics, cognitive technologies and AI-related solutions.

Moreover, IBM, which carries a Zacks Rank#3 (Hold), has been striving to improve efficacy of its quantum computing systems and blockchain offerings. In this respect, increasing IBM Q Network customer base is a positive.  

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

However, pandemic-induced restricted economic activity and decline in global IT spending may have impeded business prospects in the first quarter for IBM.

Click here to know how the company’s overall first-quarter performance is expected to be.

Strength in Red Hat to Favor Cloud Business

Pandemic-triggered digital transformation by enterprises across the globe is expected to have resulted in healthy uptake of IBM’s hybrid cloud offerings. This is likely to have aided top-line growth in the about-to-be-reported quarter.

For the first quarter, the Zacks Consensus Estimate for Cloud & Cognitive Software segment’s revenues-external is pegged at $5.342 billion.

In the first quarter of 2020, IBM’s Cloud & Cognitive Software segment reported revenues of $5.238 billion.

Synergies from Red Hat acquisition are likely to have contributed to Cloud & Cognitive Software segment’s revenues. Revenues from Red Hat in fourth-quarter 2020 increased 19% (at 17% on constant currency) on a normalized basis. Presently, more than 2,800 clients are utilizing Red Hat and IBM’s hybrid cloud platform.

Management is optimistic about enhancing utility of hybrid cloud services based on architecture built by IBM and Red Hat. The company has been leveraging OpenShift container platform to facilitate clients to upscale business operations in a secure manner via AI-powered Cloud Paks.

Further, IBM’s cloud for financial services and cloud for telecommunications (launched in November 2020) are expected to have witnessed steady traction and likely to have contributed to first-quarter top line numbers.

Nonetheless, escalating expenses directed toward cloud platform development amid intense competition in the cloud space from the likes of Amazon’s (AMZN - Free Report) Amazon Web Services, Microsoft’s (MSFT - Free Report) Azure platform and Alphabet’s (GOOGL - Free Report) Google Cloud might have dented the company’s profitability in the quarter to be reported.

Uptake of z15 to Boost Systems Segment

IBM’s first-quarter performance is likely to reflect gains from rapid uptake of IBM z15. Also, segmental revenues relating to cloud may have positively impacted results in the quarter to-be-reported.

Notably, the Zacks Consensus Estimate for Systems segment’s revenues-external in the first quarter is pegged at $1.258 billion.

In the first quarter of 2020, IBM’s Systems’ segment reported revenues of $1.368 billion. 

Cloud Paks Likely to Drive GBS Segment Performance

Healthy pipelines across hybrid cloud and data platform, AI solutions, in Cognitive Apps business driven by strength in Cloud Paks and Security, cloud-based transformation services in the Global Business Services (GBS) segment as well as App modernization offerings might have added to the first-quarter top line numbers.

Recent acquisitions (including the likes of 7Summits and Expertus) are anticipated to have contributed to the segment’s performance in the to-be-reported quarter.

Notably, the Zacks Consensus Estimate for GBS segment’s revenues-external in the first quarter is pegged at $4.119 billion.

In the first quarter of 2020, IBM’s GBS segment reported revenues of $4.136 billion.

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