IBM's Report to Reinforce Tech's Upswing - TheStreet

IBM's Report to Reinforce Tech's Upswing

IBM should provide further evidence of an improving tech sector when it reports its fourth-quarter results later today.
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ARMONK, N.Y. (TheStreet) -- IBM (IBM) - Get Report should provide further evidence of the tech sector's rebound when the bellwether reports its fourth-quarter results after market close on Tuesday.

Last week, chip giant

Intel

(INTC) - Get Report

blew past

analysts' estimates with its own

fourth-quarter

results, and IBM is expected to continue the trend.

"We expect December quarter results to provide ample evidence that demand is strengthening and should continue to build throughout 2010," wrote David Bailey, an analyst at Goldman Sachs, in a recent note. Citing top-line upside from more normal seasonality and pent up demand, Bailey also expects IBM's earnings to benefit

cost-cutting

from the firm's efforts

.

Analysts surveyed by Thomson Reuters expect IBM to post fourth-quarter revenue of $26.96 billion and earn $3.47 a share, compared to $27 billion and $3.28 a share in the

same period last year.

For fiscal 2009, Wall Street expects IBM to report revenue of $26.96 billion and earnings of $9.88 a share.

IBM, which competes with the likes of

Hewlett-Packard

(HPQ) - Get Report

and

Microsoft

(MSFT) - Get Report

, was one of tech's

best performers

during the recession, thanks in no small part to CEO

Sam Palmisano

.

The IBM chief has shifted the company's focus into high-margin areas such as

services and software

in recent years, a

strategy

that

seems to be working

.

Despite

sales down over last year's,

the upstate New York company recently posted strong

third-quarter results

and gave bullish guidance. Big Blue raised its 2009 earnings estimate from $9.70 a share to $9.85, and Palmisano said that the firm is well ahead of its 2010 roadmap of $10 to $11 a share.

Analysts surveyed by Thomson Reuters expect IBM to post 2010 earnings of $10.88 a share and sales of $98.64 billion.

As one of the biggest names in the tech sector, IBM is a barometer for both customer spending and the M&A climate, although Bailey warned that there might be more upside for investors elsewhere.

"While we expect a solid December-quarter report from IBM, we do not think the results will serve as a major catalyst for the stock in either direction, given heightened expectations," he wrote, adding that he is neutral on IBM's shares, despite strong earnings potential. "We continue to believe that investors will move toward companies that will benefit the most as the IT-demand environment improves by demonstrating significant top-line growth and earnings upside, including

EMC

(EMC)

,

Dell

(DELL) - Get Report

,

Arrow

(ARW) - Get Report

and

Molex

(MOLX)

."

IBM is nonetheless

betting big on consulting

services and its

Smarter Planet

strategy to drive revenue growth, a

shrewd move

at a time when users are

cutting

their hardware spending.

During the third quarter, profit from IBM's services business grew 11% and its software business enjoyed a 21% profit hike.

IBM shares rose $2.34, or 1.79%, to $134.14 during late-day trading on Tuesday.

-- Reported by James Rogers in New York

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