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Will IBM's Cognitive Solutions and GBS Drive Q2 Earnings?

Zacks Equity Research
Updated

International Business Machines IBM is riding high on robust performance from the Cognitive Solutions and Global Business Services segment. In fact, the company’s growth will be driven primarily by Big Data & business analytics, cloud computing, mobile, security and social business going ahead. The company is set to report second-quarter 2018 results on Jul 18.

IBM’s significant investments in “Strategic Imperatives” — cloud computing, mobile, cognitive technologies and AI is a major tailwind.

International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation Price and EPS Surprise | International Business Machines Corporation Quote

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Click here to know how the company’s overall Q2 performance is expected to be.

Strategic Imperatives Growth Continues

Strategic Imperatives (cloud, analytics, mobility and security) grew 10% at cc from the year-ago quarter to $9 billion. Security revenues surged 60% in the quarter.

Cloud is included in the Cognitive Solutions (including Watson) and Global Business Services (GBS). Cloud revenues advanced 22% from the year-ago quarter to $17.70 billion. Cloud revenue on a trailing 12-month basis is now $15.8 billion, more than 20% of the company’s total revenues.

Cognitive Grows on Robust Security, Analytics

Cognitive Solutions revenues increased 6.3% year over year to $5.08 billion. Revenues (external) increased 2% at cc to $4.30 billion, driven by robust performance from security and analytics offerings.

Segmental revenues pertaining to Strategic Imperatives and Cloud grew 2% and 4%, respectively. Cloud as-a-service revenue annual run rate was $2 billion. Solutions software revenues increased 2%, while Transaction Processing Software revenues grew 1% on a year-over-year basis.

IBM’s solid security portfolio is helping it to win clients on a regular basis. Increasing demand for security solutions due to increasing hacking risks and data privacy concerns is driving growth. The company is also benefiting from the upcoming GDPR regulations in Europe.

Extensive AI capabilities across the portfolio drove top-line growth in SaaS offerings within the security segment.

Analytics grew on the back of strong transactional performance. Growth was strong across both on-premise platform and SaaS offerings. Watson continues to impress with regular client wins like Orange Bank and Autodesk. IBM stated that demand for Watson offerings particularly digital assistant remains strong.

The Zacks Consensus Estimate for revenues from Cognitive Solutions is pegged at $5.636 billion up 5.9% from the actual figure reported in the prior-year quarter.

GBS

Revenues from Global Business Services segment were $4.26 billion, up 4.2% from the year-ago quarter. Segmental revenues pertaining to Strategic Imperatives grew 6%. Cloud practice climbed 12%. Cloud as-a-service revenue annual run rate was $1.2 billion.

Consulting revenues were flat year over year driven by strong performance from IBM’s digital business and ix platform.

The Zacks Consensus Estimate for revenues from Global Business Services is pegged at $4.344 billion up 4.2% from the actual figure reported in the prior-year quarter.

Zacks Rank and Stocks to Consider

IBM carries a Zacks Rank #3 (Hold).

CyberArk Software Ltd. CYBR, Western Digital Corporation WDC and Intel Corporation INTC are some better-ranked stocks in the same sector. All the three companies carry a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

CyberArk, Western Digital and Intel have a long-term earnings growth rate of 19.1%, 19% and 8.4%, respectively.

Wall Street’s Next Amazon

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