IBM Earnings: What To Watch

Mark Lennihan/Associated Press

International Business Machines Corp.IBM +2.30% is scheduled to report its financial results for the first quarter ended in March, after the market closes Monday. Here’s what you need to know.

–EARNINGS FORECAST: Analysts surveyed by Thomson Reuters, on average, expect adjusted earnings of $2.80 per share, up from $2.54 a year ago.

–REVENUE FORECAST: Wall Street analysts expect revenue of $19.6 billion, down from $22.5 billion a year ago.

WHAT TO WATCH

–SHRINKING REVENUE: IBM’s revenue is expected to drop for the 12th straight quarter, following some business downsizing last year. The company sold off its commodity server business to Lenovo Group Ltd. last fall, and announced plans to unload its chip-making business to Globalfoundries sometime this year. In the long run, those deals should help IBM’s profitability, but for the moment, they’re making it hard for IBM to increase year-over-year sales. IBM is investing in interesting new services such as its Watson artificial intelligence platform and services for Apple’s mobile platform, but neither of these offerings is generating significant revenue.

–CURRENCY IMPACT: In January, IBM revised its long-held target of earning $20 per share in 2015 downward, forecasting results in the $15.75 to $16.50 per share range. Since then, the U.S. dollar has surged, and that could further hurt IBM’s estimate. The market will be watching this closely. Analysts are expecting 2015 earnings to be $16.39 per share, according to Thomson Reuters.

–ENTER THE MAINFRAME: One glimmer of good news for IBM comes from its mainframe hardware business. The company started shipping its new z13 mainframes this quarter, and this should boost a business that shrank 40 percent during the first quarter of 2014. Weak mainframe growth would be a worrying sign for a company that’s seen its core hardware businesses under siege from low-cost commodity server vendors and cloud-computing rivals.