Foolish Forecast: IBM's Odyssey

Slow, boring sales growth
Earnings moving swiftly up
Long-term thinking reigns

Big Blue looking bold and new
Keeping up with changing needs

Apologies to the tanka purists out there, but it is National Poetry Month, and I'm just trying to do my part. International Business Machines (NYSE: IBM  ) is set to report first-quarter 2007 earnings next Tuesday night, so this Fool added a sincere tie to his jesterly outfit, the better to mingle with the IBMers and get a feel for the company's prospects.

What analysts say:

• Buy, sell, or waffle? Twenty-four analyst firms follow Big Blue. Fourteen of them have a buy rating on the stock, nine are holding, and one firm is taking the contrarian "sell" view. In our Motley Fool CAPS market intelligence system, it's a two-star stock, based on over 1,000 player ratings.
• Revenues. $21.9 billion would suffice to mollify Wall Street's mean estimate -- a 5.8% boost over last year's $20.7 billion.
• Earnings. The average forecast calls for about $1.21 per share, in the middle of a ten-cent range of estimates. To meet management's long-term growth goals (see below), IBM would have to produce between $1.19 and $1.21 per share, up from $1.08 a year ago.

What management says:
The latest earnings release, being a full-year report, was accompanied by a letter to shareholders. In it, CEO Sam Palmisano said that this isn't your father's IBM. "Whether you look at our technology, strategy, business model, processes or culture, IBM is a very different enterprise today than it was at the beginning of the decade. We have prepared the company for growth and leadership in a radically different future -- while continuing to deliver steady results."

Management saw change coming in the various IT markets where IBM makes a living, several years before it happened. So, the company was "remixed" to align with high-growth opportunities and let go of the less exciting operations. The company now aims for 10%-12% earnings growth per share -- for the long haul. It is doing better than that in emerging markets like China and Brazil, with a compound 21% growth rate in those regions.

In many ways, this sounds like how Cisco (Nasdaq: CSCO  ) peers into the far future through its many intimate business connections, plus the shapeshifting acumen of General Electric (NYSE: GE  ) , which is known for its ability to mold its many operations into whatever spaces look most attractive today. You could certainly have worse role models than that dynamic duo.

What management does:
What you see below is the story of a company that sacrifices revenue growth to gain earnings power. IBM is going after high-quality sales with higher margins, compared to past practices, and it shows on the bottom line. Of course, losing the personal computer division to Lenovo (OTC BB: LNVGY) back in 2005 isn't helping the year-over-year revenue comparisons any, but there is no doubt in my mind that we're looking at a healthier and more efficient concern as a result of that deal.

One Fool says:
No other company strains my email account quite like IBM. Every day I get a handful of press releases from Armonk, NY, detailing the latest client signings or new technologies out of Big Blue. I got nine of them yesterday, for example.

I don't quite know whether to call this braggadocio or transparency, and it's probably a bit of both. By contrast, Oracle (Nasdaq: ORCL  ) tends to only highlight its absolutely biggest deals -- though in fifteen-foot neon letters on the hilltop. Microsoft (Nasdaq: MSFT  ) takes a lower-key approach, and I find out some of the biggest Redmond news from third-party sources. Diff'rent strokes, folks.

The one thing this news barrage does is keep me updated on the general volume of IBM's wheelings and dealings, and like I said, there's no shortage of that these days. In other words, expect a strong performance once again -- IBM has a seven-quarter beat-the-estimates streak going, and this would make it eight.

Microsoft is a Motley Fool Inside Value pick.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and the Foolish disclosure policy would sound better in iambic pentameter.