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IBM Gears Up to Report Q3 Earnings: What's in the Offing?

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International Business Machines Corporation (IBM - Free Report) is slated to report third-quarter 2021 results on Oct 20.

The Zacks Consensus Estimate for third-quarter earnings increased 0.4% over the past 30 days to $2.49 per share, which indicates a decline of 3.49% from the prior-year quarter’s levels.

For quarterly sales, the consensus mark is pegged at $17.76 billion that suggests an improvement of 1.13% from the year-ago quarter’s reported figure.

The company has a trailing four-quarter earnings surprise of 6.76%, on average.

Factors to Note

IBM’s third-quarter results are likely to reflect continued adoption of its hybrid cloud computing capabilities, mobile, analytics, cognitive technologies and AI-related solutions. During the third quarter, the company launched the new IBM Power E1080 server, the first in a new family of servers based on the new IBM Power10 processor, designed specifically for hybrid cloud environments.

Moreover, the company launched AI and automation capabilities in IBM Watson Assistant designed to make it easier for businesses to create enhanced customer service experiences across any channel.

Synergies from the Red Hat acquisition are expected to have contributed to the cloud segment’s revenues in the to-be-reported quarter. Revenues from Red Hat in the second quarter increased 20% (up 17% at cc) on a normalized basis, driven by the strong uptake of Red Hat Enterprise Linux and the OpenShift platform.

More than 3,200 clients including the likes of Barclays and Walmart are using Red Hat and IBM’s hybrid cloud platform, presently.

Its new company, Kyndryl is expected to have facilitated the digital transformation of clients and is a testament to IBM’s efforts to accelerate its hybrid cloud growth strategy. On Jul 1, IBM’s Kyndryl division announced its global leadership model whereby it will create six global managed services practices and an advisory and implementation services practice in support of customers, which pulls together managed services, advisory services and implementation. The six managed service practices include Cloud, Security & Resiliency, Core Enterprise & zCloud, Network & Edge, Digital Workplace and Applications, Data & AI.

However, escalating expenses directed toward cloud platform development amid intense competition in the cloud space from the likes of Amazon’s (AMZN - Free Report) Amazon Web Services, Microsoft’s (MSFT - Free Report) Azure platform and Alphabet’s (GOOGL - Free Report) Google Cloud has been a headwind for this Zacks Rank #4 (Sell) company.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Developments in Q3

IBM entered into an agreement to acquire Bluetab Solutions Group, S.L. to extend its portfolio of data and hybrid cloud consulting services. Bluetab will become a strategic part of IBM's data services consulting practice to further advance its hybrid cloud and AI strategy.

Moreover, IBM announced plans to acquire BoxBoat Technologies, a premier DevOps consultancy and enterprise Kubernetes certified service provider. BoxBoat will extend IBM's container strategy and implementation services portfolio to further advance IBM's hybrid cloud strategy and accelerate Red Hat OpenShift adoption globally.

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