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Will Lower Software Revenues Impact IBM's Q2 Earnings?
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International Business Machines Corporation (IBM - Free Report) is scheduled to report second-quarter 2024 results on Jul 24, after the closing bell. In the to-be-reported quarter, the company is likely to have recorded lower revenues from the Software segment owing to weakness in the hybrid platform & solutions business. However, a strong focus on product innovation and the growing clout of watsonx.ai across various sectors is a tailwind.
Factors at Play
The Software segment includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & artificial intelligence (AI) businesses and Transaction Processing.
During the second quarter, IBM introduced significant updates to Qiskit, its widely used quantum software platform. This enhancement is designed to maximize the performance of IBM's quantum hardware, allowing users to run increasingly complex quantum circuits.
The advanced feature in IBM’s Qiskit stack includes The Qiskit Runtime Service, which simplifies the execution of quantum circuits, while the Qiskit Code Assistant, powered by watsonx-based generative AI models, automates the development of quantum code. Additionally, the Qiskit Serverless tool facilitates quantum-centric supercomputing workloads across both quantum and classical hardware.
IBM is steadily advancing with its vision of integrating quantum, classical and AI resources into a new high-performance computing paradigm defined by quantum-centric supercomputing. The Qiskit solution is witnessing healthy market traction in various sectors, such as energy and education. These are likely to have supported the top line in the Software segment.
In the quarter under review, All-England Lawn Tennis Club leveraged IBM’s AI and data platform, watsonx, to introduce enticing AI native features to enrich the overall experience of tennis fans, coaches and players globally. A prominent marketing and advertising company based in the U.K. collaborated with IBM to introduce a new business-to-business (B2B) solution within the marketing industry. Leveraging IBM's cutting-edge AI technologies, including watsonx, the solution aims to address B2B marketing challenges and expedite digital transformation for business enterprises globally. These developments will likely have a favorable impact on net sales in the Software segment.
In the second quarter, IBM inked a definitive agreement to acquire HashiCorp Inc for an all-cash transaction of $35 per share, totaling an enterprise value of approximately $6.4 billion. HashiCorp boasts a robust product suite that allows businesses to automate their hybrid and multi-cloud environments with extensive Infrastructure Lifecycle Management and Security Lifecycle Management capabilities. Integration of Hashicorp’s capabilities is expected to drive synergies in multiple strategic growth areas such as IBM watsonx, Red HaT, IT automation and more. This will significantly strengthen IBM’s hybrid multi-cloud approach and accelerate innovation.
However, the persistence of uncertainty in some end markets stemming from macroeconomic headwinds remains a concern for this segment. Frequent acquisition exposes the company to integration risks.
Overall Expectations
The Zacks Consensus Estimate for Software revenues is pegged at $6.55 billion, indicating a decline from $6.6 billion in the year-ago quarter. However, our estimate for revenues from Software is pegged at $6.61 billion, suggesting a 5.1% improvement year over year.
The Zacks Consensus Estimate for total revenues for the company stands at $15.58 billion. It generated revenues of $15.48 billion in the prior-year quarter. The consensus mark for earnings is currently pegged at $2.16 per share, indicating decline from $2.18 in the year-earlier quarter.
Earnings Whispers
Our proven model predicts a likely earnings beat for IBM for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.46%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
International Business Machines Corporation Price and EPS Surprise
Here are some other companies you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this season:
The Earnings ESP for Silicon Motion Technology Corporation (SIMO - Free Report) is +2.66% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Aug 1.
The Earnings ESP for Meta Platforms, Inc. (META - Free Report) is +1.35% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 31.
Image: Bigstock
Will Lower Software Revenues Impact IBM's Q2 Earnings?
International Business Machines Corporation (IBM - Free Report) is scheduled to report second-quarter 2024 results on Jul 24, after the closing bell. In the to-be-reported quarter, the company is likely to have recorded lower revenues from the Software segment owing to weakness in the hybrid platform & solutions business. However, a strong focus on product innovation and the growing clout of watsonx.ai across various sectors is a tailwind.
Factors at Play
The Software segment includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & artificial intelligence (AI) businesses and Transaction Processing.
During the second quarter, IBM introduced significant updates to Qiskit, its widely used quantum software platform. This enhancement is designed to maximize the performance of IBM's quantum hardware, allowing users to run increasingly complex quantum circuits.
The advanced feature in IBM’s Qiskit stack includes The Qiskit Runtime Service, which simplifies the execution of quantum circuits, while the Qiskit Code Assistant, powered by watsonx-based generative AI models, automates the development of quantum code. Additionally, the Qiskit Serverless tool facilitates quantum-centric supercomputing workloads across both quantum and classical hardware.
IBM is steadily advancing with its vision of integrating quantum, classical and AI resources into a new high-performance computing paradigm defined by quantum-centric supercomputing. The Qiskit solution is witnessing healthy market traction in various sectors, such as energy and education. These are likely to have supported the top line in the Software segment.
In the quarter under review, All-England Lawn Tennis Club leveraged IBM’s AI and data platform, watsonx, to introduce enticing AI native features to enrich the overall experience of tennis fans, coaches and players globally. A prominent marketing and advertising company based in the U.K. collaborated with IBM to introduce a new business-to-business (B2B) solution within the marketing industry. Leveraging IBM's cutting-edge AI technologies, including watsonx, the solution aims to address B2B marketing challenges and expedite digital transformation for business enterprises globally. These developments will likely have a favorable impact on net sales in the Software segment.
In the second quarter, IBM inked a definitive agreement to acquire HashiCorp Inc for an all-cash transaction of $35 per share, totaling an enterprise value of approximately $6.4 billion. HashiCorp boasts a robust product suite that allows businesses to automate their hybrid and multi-cloud environments with extensive Infrastructure Lifecycle Management and Security Lifecycle Management capabilities. Integration of Hashicorp’s capabilities is expected to drive synergies in multiple strategic growth areas such as IBM watsonx, Red HaT, IT automation and more. This will significantly strengthen IBM’s hybrid multi-cloud approach and accelerate innovation.
However, the persistence of uncertainty in some end markets stemming from macroeconomic headwinds remains a concern for this segment. Frequent acquisition exposes the company to integration risks.
Overall Expectations
The Zacks Consensus Estimate for Software revenues is pegged at $6.55 billion, indicating a decline from $6.6 billion in the year-ago quarter. However, our estimate for revenues from Software is pegged at $6.61 billion, suggesting a 5.1% improvement year over year.
The Zacks Consensus Estimate for total revenues for the company stands at $15.58 billion. It generated revenues of $15.48 billion in the prior-year quarter. The consensus mark for earnings is currently pegged at $2.16 per share, indicating decline from $2.18 in the year-earlier quarter.
Earnings Whispers
Our proven model predicts a likely earnings beat for IBM for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.46%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
International Business Machines Corporation Price and EPS Surprise
International Business Machines Corporation price-eps-surprise | International Business Machines Corporation Quote
Zacks Rank: IBM currently has a Zacks Rank #3.
Other Stocks to Consider
Here are some other companies you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this season:
Corning Incorporated (GLW - Free Report) is set to release quarterly numbers on Jul 30. It has an Earnings ESP of +1.59% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Earnings ESP for Silicon Motion Technology Corporation (SIMO - Free Report) is +2.66% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Aug 1.
The Earnings ESP for Meta Platforms, Inc. (META - Free Report) is +1.35% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 31.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.