International Business Machines Corp. (IBM): What to Watch For in Earnings

On Thursday, International Business Machines Corp. (NYSE:IBM) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they’ll do before they announce results, leaving you fully prepared to respond quickly to whatever surprises inevitably arise. That way, you’ll be less likely to have an uninformed, knee-jerk reaction that turns out to be exactly the wrong move.

As the most influential stock in the Dow Jones Industrials, International Business Machines Corp. (NYSE:IBM) gets plenty of attention not only from tech investors, but also by market watchers in general. As competition has increased, however, Big Blue has had to work increasingly hard to defend its turf and break new ground with its technology innovations. Let’s take an early look at what’s been happening with International Business Machines Corp. (NYSE:IBM) over the past quarter and what we’re likely to see in its quarterly report.

Stats on IBM

Source: Yahoo! Finance.

Will International Business Machines Corp. (NYSE:IBM) leave investors feeling blue this quarter?
In recent months, analysts have gotten more excited about International Business Machines Corp. (NYSE:IBM)’s earnings prospects. They’ve only boosted their calls on first-quarter earnings by $0.02 per share, but they’ve added a more respectable $0.15 per share to their full-year 2013 calls on IBM’s earnings. The stock has advanced in line with the broader market, rising a bit more than 10% since early January.

Even though it invented the PC, IBM has done an excellent job of avoiding the machine’s fallout. By moving beyond hardware to incorporate higher-margin services including IT consulting, servers, and cloud computing, International Business Machines Corp. (NYSE:IBM) avoided the trap that has snared other big tech companies as PC sales have declined.

But IBM has had to deal with increasing competition to its business model. Business software giant Oracle Corporation (NASDAQ:ORCL) has finally reached an impressive execution milestone in the strategy it began four years ago with its acquisition of Sun Microsystems: Oracle Corporation (NASDAQ:ORCL)’s new chips and server products managed to best Big Blue’s offerings in independent benchmark testing. Smaller companies will increasingly find their own niche roles in the big-data space as well. For instance, CyrusOne Inc (NASDAQ:CONE), which got spun off from Cincinnati Bell Inc. (NYSE:CBB) recently, is seeking to make a name for itself in the data-storage infrastructure space. Despite its hefty debt load, CyrusOne Inc (NASDAQ:CONE) has huge growth potential to capitalize on the growing need for data-storage centers, and it has the benefits of tax-favored real-estate investment trust status to boot.

IBM hasn’t been coy about trying out new areas for potential growth. Last week, it announced a $1 billion initiative to invest in technology related to flash memory, the high-speed alternative to older technologies like hard disk drives. With the potential to reduce the time required for critical operations like banking transactions and telecommunications services, the initiative fits well with IBM’s overall big-data mission.

In IBM’s quarterly report, watch for how Big Blue responds to the news on Oracle’s performance. With quality always vital for IBM, the company will need to show how it intends to find its way back to the top spot in short order.

The article What to Watch For in Thursday’s IBM Earnings originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of International Business Machines (NYSE:IBM). and Oracle.

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