International Business Machines (IBM) will report its third-quarter financial results after the market close on Monday October 17.

The analysts’ consensus on IBM earnings per share (EPS) is $ 3.23. The forecast indicates a 3% drop compared with the same quarter last year and a decline for the sixth quarter in a row on IBM’s year-over-year earnings. 

The consensus estimate on IBM’s revenues is $19 billion, a decline of 1.5% from the same quarter in 2015.
The release will reveal details on the performance of the giant company that is trying to reinvent itself after a shift in the industry made its 105-year-old core business model – based on hardware – obsolete. But despite undergoing a restructuring of the core business around cloud computing and ‘cognitive solutions” – a.k.a. artificial intelligence – the company has analysts skeptical about the profitability of the investments in the short term.

“You just can’t turn a battleship around in a bathtub,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners who believes that the Big Blue will continue to pay a high price for its size and for the weight of its legacy products. He thinks the company isn’t keeping up with competitors in addressing market segments such as cloud and mobile.

“They lack the ability to become a dominant player in strategic sectors because they are slow,” Feinseth said.

In 2015 IBM invested $5 billion in the so-called Strategic Imperatives (SI) and acquired a number of companies to serve this scope.

So far the new strategy has had some impact. In the second-quarter, when IBM moderately beat estimates, SI accounted for 38% of IBM’s total revenues, generating $30.7 billion.

During the first quarter this year IBM also announced a plan to save on operational costs that might impact positively on the performance, but not on the dividends as the company’s investment strategy will likely absorb any surplus.  

The Q3 report will be a key to reveal whether this trend will continue or  has finally meet headwinds: a good result despite the year-over-year decline in revenues might signal that the investment are starting to pay off and that holding IBM stocks is a viable investment.

Roberto Capocelli