IBM On Deck: Expect Steady Growth

NEW YORK (TheStreet) -- Though IBM (IBM) is the less flashy of the two big tech firms reporting quarterly earnings after the bell Monday -- Apple (AAPL) is the other -- investors can expect more of what the lumbering giant has come to represent: Slow, steady growth.

Last quarter, IBM missed revenue targets and reported a 12% decline in its services sector revenue, due in part to the faltering economy and its battle with big currency headwinds.
IBM

Analysts are cautiously bullish for IBM's third-quarter results, heralding the uptick in corporate spending that Intel ( INTC) alluded to last week. "I expect that IBM's services group has benefitted from this uptick and the company has wisely been offering a lot of deals to spur renewals and new business," said Laura DiDio, principal with research firm ITIC, in an e-mail to TheStreet.

Accenture ( ACN) has also raised expectations for IBM's vast services business. The consulting giant and IBM rival recently reported strong fourth-quarter results, boosted by $6.5 billion worth of new bookings.

Analysts surveyed by Thomson Reuters expect IBM to report quarterly EPS of $2.75 on revenue of $24.13 billion, up from $2.40 on sales of $23.57 billion the company reported in the year-ago period. Analysts are also hoping to see evidence of top-line sales growth, but only at a rate of about 3%.

"We think IBM had a reasonable, though far from spectacular, September quarter," wrote BMO Capital Markets analyst Keith Bachman in a recent note. Bachman holds an outperform on the stock. "As we look to the December quarter, we believe IBM will have improving growth rates in hardware and the potential for better growth rates in services. Hence, we think IBM can be a good Q4 stock."

Investors will be eager to get an update on IBM's M&A strategy when the tech giant discusses its results. One of tech's biggest predators, IBM shows no signs of slowing down on its acquisition tear, as evidenced by its recent purchases of privately-held PSS Systems and Blade Network Technologies, as well as its $1.7 billion deal for data warehousing specialist Netezza ( NZ).

In the business analytics space alone, IBM has spent more than $12 billion in the last five years, acquiring some 23 companies.

Charles King, an analyst at tech research firm Pund-IT, told TheStreet that he expects to see IBM focus future M&A on making servers and storage run more efficiently. "The workload optimization channel is one that IBM and other vendors are headed down one way or the other," he said. "And IBM is being far more proactive on that front than Oracle ( ORCL) or HP ( HPQ)."

King is also keen to see IBM push the M&A envelope into less obvious areas. "We're in such a phase of intense industry consolidation right now that if a good, intriguing very innovative hardware company came up for sale, it wouldn't surprise me if IBM reached into its pocket and went for it," he said.

Security specialists Blue Coat Systems ( BCSI) and Websense ( WBSN) have already been touted as attractive potential targets. There has also been chatter linking IBM to Israeli networking specialist Radware ( RDWR).

The tech bellwether, however, recently warned that its acquisition strategy and organic growth could be impacted by increased regulation of the derivatives market.

In midday trading Monday, IBM was up 92 cents to $141.98.

--Written by James Rogers in New York, with additional reporting by Maggie Overfelt.

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