ARMONK, N.Y. (TheStreet) -- Although one of the better performers in large-cap tech these days, IBM (IBM), which reports second-quarter results after market close Monday, is likely to reveal clouds hanging over its federal business, which has broader implications for tech overall.
"Weak public sector demand could continue to impact [its] service business," wrote Drake Johnstone, an analyst at Davenport & Company, in a recent note. "There is potential risk that U.S. government spending on information technology could weaken in the near-term due to uncertainty surrounding the U.S. government debt limit and potential spending cuts."
Services account for around 60% of the 100 year-old tech bellwether's overall revenue.
Speaking during IBM's first-quarter call, CFO Mark Loughridge cited "difficulty" in the public sector. Weakness in this area impacts the company's global business services, he explained, but then added that this is not a "difference maker" in IBM's overall business. Investors should expect Loughridge to face questions on whether this is still the case following the company's results.Implications for the Rest of Tech Tech investors monitor Loughridge's public sector comments to weigh the impact on other big-name tech stocks. Beleaguered networking giant Cisco (CSCO), for example, gets about 20% of its revenue from the public sector, and has already noted a significant decline in government spending, both in the U.S. and overseas. PC maker Dell (DELL) also felt the impact of public sector budget cuts in the U.S. and Western Europe during its recent second-quarter results. Dell gets around a quarter of its total revenue from the public sector, but saw this part of its business decline 2% year-over-year. As for IBM, there is still plenty of positive sentiment surrounding the company's stock. Less flashy for investors than, say, Apple (AAPL), IBM has earned a reputation for solid growth thanks to its shift away from commodity hardware towards high-margin areas such as software and services. IBM surpassed Microsoft's market cap for the first time in 15 years earlier this year. IBM's stock has risen more than 19% this year, which contrasts with HP (HPQ) and Microsoft (MSFT), whose shares have fallen 17% and 3.82%, respectively. Even Apple's meteoric rise has slowed amid ongoing investor unease about the broader economy, gaining just over 14% this year, while shares of IBM's fierce database rival Oracle (ORCL) have added just over 1% to their value. "We believe that the [IBM] shares are a very good holding in uncertain times given the recurring nature of much of IBM's business," wrote Collins Stewart analyst Louis Miscioscia in a note, adding that recent strong results from services giant Accenture (ACN) and Oracle (ORCL) bode well for IBM. "We see Accenture's results and overall industry trends as a positive read for IBM," added UBS analyst Maynard Um. "IBM is executing well in key growth initiatives like biz analytics, cloud computing, growth markets and smarter planet." Analysts are looking for IBM to report second-quarter revenue of $25.35 billion and earnings of $3.03 a share after market close, up from $23.7 billion and $2.62 a share in the same period last year. Shares of IBM, however, have dropped following six of its last seven earnings reports. IBM shares dipped $1.21, or 0.67%, to $174.33 on Monday as the Nasdaq dipped 1.15%. --Written by James Rogers in New York. >To follow the writer on Twitter, go to http://twitter.com/jamesjrogers. >To submit a news tip, send an email to: firstname.lastname@example.org.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV