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Hybrid Cloud and GBS in Focus Ahead of IBM's Q3 Earnings

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International Business Machines Corporation’s (IBM - Free Report) third-quarter results are likely to reflect the healthy adoption of hybrid cloud, Watson, and blockchain platforms.

Additionally, the digital transformation wave has bolstered the adoption of cloud-based QRadar, and Identity and Trust services, and CloudPak for Security offerings.

Moreover, IBM has been striving to enhance the efficiency of its blockchain solutions, and quantum computing systems and services. In this respect, the growing clientele of IBM Q Network has been a positive.

Strength in Red Hat to Favor Cloud Business

Solid uptick in the company’s hybrid cloud computing capabilities, mobile, analytics, cognitive technologies and AI-related solutions is expected to get reflected in third-quarter revenues.

For the third quarter, the Zacks Consensus Estimate for Cloud & Cognitive Software segment’s revenues-external is pegged at $5.74 billion. IBM’s Cloud & Cognitive Software segment reported revenues of $5.5 billion in the year-ago quarter.

Particularly, synergies from the Red Hat acquisition are expected to have contributed to the Cloud & Cognitive Software segment’s revenues in the to-be-reported quarter.

Revenues from Red Hat in second-quarter 2021 increased 20% (up 17% at cc) on a normalized basis. Currently, more than 3,200 clients are using Red Hat and IBM’s hybrid cloud platform.

Management is optimistic about enhancing the utility of hybrid cloud services based on architecture built by IBM and Red Hat. On Sep 8, IBM and Sumo Logic announced the availability of Sumo Logic’s Continuous Intelligence Platform on Red Hat Marketplace. Sumo Logic will offer its cloud-native security and observability solutions for companies running on the Red Hat OpenShift platform, helping them to deploy faster and achieve insights into their cloud and hybrid infrastructures, applications, and services.

Further, the company’s cloud for financial services and cloud for telecommunications (launched in November 2020) are expected to have witnessed steady traction and contributed to second-quarter top-line numbers.

On Sep 22, IBM announced that financial institutions across Africa have selected hybrid cloud and AI capabilities from IBM to unlock digital innovation and continue their work to develop digital-first solutions, ultimately aiming to broaden access to financial services on the continent.

Markedly, SAP intends to onboard two of its finance and data management solutions to IBM Cloud for Financial Services to help accelerate IBM cloud adoption within the financial services industry. The collaboration will be designed to help the companies address the industry's stringent compliance, security and resiliency requirements, while supporting business transformation and innovation for financial services institutions.

However, increasing expenses on enhancing cloud platform amid stiff competition from Microsoft (MSFT - Free Report) Azure, Amazon’s (AMZN - Free Report) Amazon Web Services and Oracle’s (ORCL - Free Report) Oracle Cloud remain headwinds for this Zacks Rank #4 (Sell) company.

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

Cloud Paks Likely to Drive GBS Segment Performance

Robust pipelines across hybrid cloud and data platform, AI solutions, and in Cognitive Apps business, driven by strength in Cloud Paks and Security, cloud-based transformation services in the Global Business Services (GBS) segment, and App modernization offerings, might have favored third-quarter performance.

On Jul 20, IBM unveiled advanced data protection capabilities to the IBM FlashSystem family of all-flash arrays to help companies better plan for – and recover quickly from – ransomware and other cyberattacks.

The acquisitions of 7Summits and Expertus are anticipated to have contributed to the segment’s performance in the to-be-reported quarter.

The Zacks Consensus Estimate for GBS segment’s revenues-external in the third quarter is pegged at $4.31 billion. In the third quarter of 2020, IBM’s GBS segment had reported revenues of $3.96 billion.

Adoption of z15 to Boost Systems Segment

The company’s third-quarter results are likely to reflect gains from the rapid uptake of IBM z15. Also, segmental revenues pertaining to cloud may favor soon-to-be-reported quarter’s results.

The Zacks Consensus Estimate for Systems segment’s revenues-external for the third quarter is pegged at $1.26 billion. IBM’s Systems segment had reported revenues of $1.25 billion in the year-ago quarter.

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