Q1 Preview: IBM (IBM) Investors Shouldn't Feel Blue This Quarter

International Business Machines Corp. (NYSE: IBM) is trading lower Tuesday ahead its first-quarter earnings report, expected out after the market closes. Shares are down about 0.4 percent at last check.

IBM is expected to report EPS of $2.30 on revs of $24.02 billion. Last quarter, the Armonk, NY-based tech giant issued EPS of $4.18 on revenue of $29 billion, both topping the consensus. For the same quarter last year, IBM posted EPS of $1.97 on sales of $22.9 billion.

Shares gained 11 percent over the quarter and are up 0.9 percent since.

IBM is trading at a forward P/E of 11.4x FY12 EPS estimates, compared to 10.8x for Advanced Micro Devices (NYSE: AMD), 12.3x for Texas Instruments (NYSE: TXN), and 16.0x for QUALCOMM Inc. (Nasdaq: QCOM).

Data from Bloomberg has 17 analysts with a Buy on IBM, 13 with a Hold, and none suggesting to Sell. The analyst price target average is $175.50, with a high of $200 and low of $144. Shares have traded in a range of $167.72 - $116 over the last 52-weeks.

Analyst Summary

• Goldman Sachs is looking for an in-line report from IBM. The firm sees EPS of $2.26 on sales of $23.86 billion.
  
  "We believe IBM faces only minor supply side risk from Japan, and the company’s hardware division does not represent a significant swing factor for results in our view. On the demand side, IBM generates approximately 10.8% of revenues from Japan, which is not insignificant."
  
  Goldman sees some contribution from IBM's software segment, seeing growth of 3.2 percent to $5.18 billion. Growth in software will be slightly lower sequentially according to Goldman. Hardware will still benefit from product cycles, with Goldman expecting a 12 percent increase to $3.79 billion.
  
  Goldman expects IBM to reiterate its FY11 outlook.
  
  
• Deutsche Bank is also expecting solid results, with EPS of $2.24 on revs of $24.1 billion. Deutsche comments "we believe IBM benefited from a strong close to the quarter in software and demand is robust for mainframe and POWER based HW systems (share gains from Oracle/Sun Ultrasparc). We also expect improving consulting fundamentals bode well for Services results and IBM stands to benefit from volume improvements in existing services contracts and the ramp of past wins."
  
  Deutsche sees gross margins improving as well, from 43.7 percent during the first quarter to 45.2 percent this quarter. Deutsche sees Services bookings as a wild card this quarter, with lower-than-normal volumes and lighter per-contract amounts. The firm is more bullish on results from Hardware and Software.
  
  Deutsche believes the Japan earthquake will impact IBM's transactional business in Japan near-term.
  
  
• Janney is looking for EPS of $2.34 on revs of $23.72 billion. The firm calls the impact from the Japan earthquake "manageable." Janney is looking for a 10 percent increase in Hardware revs, driven by servers. Software should grow by 6 percent from the first quarter of last year. Service revs should increase about 2 percent, with strong growth coming from Global Business Services.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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