IBM (IBM) reported a mixed quarter after Tuesday's market close. Except for the last three months, IBM has outperformed the S&P 500 since I published my last column on the company, Not Your Father's IBM, on July 29, 2011. The company continues to march toward its five-year plan of total enterprise domination.
I continue to maintain that IBM is a drama free way to play the global IT business.
After the close, IBM reported earnings of $5.39 per share, $0.14 better than the consensus estimate of $5.25. Revenue declined 0.6% to $29.2 billion. Software revenue rose 3%, services revenue fell 2% and backlog came in flat at $140 billion.
Management forecasted a strong fiscal 2013 and sees at least earnings per share of $16.70, which is $0.07 ahead of the consensus estimate. IBM believes it is on plan to hit earning per share of $20 by 2015. Although the company has struggled to convincingly bust through the $100 billion in sales ceiling, it's only a matter of time, since IBM's service backlog stands at an astounding $140 billion. Services make up about 60% of revenue.
By 2015, IBM hopes to get the majority of revenues from software and cloud computing. In addition, IBM is invading the emerging markets. So-called growth countries, such as Brazil, Russia, India and China represent about 22% of revenues, right now. Management believes it can pull 30% of revenues out of the emerging markets and get half of the company's earnings growth out of the BRICs.
To me, IBM continues to be a compelling story. IBM's main competitor, Hewlett-Packard (HPQ), is a total basket case. HP is mired in the lousy PC business and a printer business that has turned ugly. Hewlett-Packard CEO Meg Whitman is spending all her time trying to undo the Autonomy disaster. In the meantime, IBM continues to chug along drama free. If you believe hedge fund managers such as David Tepper, stocks are the place to be in 2013 and IBM seems on track to have a strong year.
