A barrage of quarterly earnings reports are coming this month, but the most interesting will be from three tech giants, each with something to prove. International Business Machines (NYSE:IBM), fresh off guiding for a return to earnings growth in 2017, will need to keep the momentum going and continue to expand its cloud business at a breakneck pace. Qualcomm (NASDAQ:QCOM), attempting to close a massive acquisition as it faces down multiple lawsuits, has the challenge of convincing investors that its cash-cow licensing business isn't under threat. And Intel (NASDAQ:INTC), which has enjoyed essentially no competition in its core markets in recent years, now needs to find a way to grow in a world where its chips aren't the only option. Here's what to look for in these three upcoming earnings reports.
International Business Machines
IBM stock has been on a tear since bottoming out in early 2016, gaining nearly 50% and erasing a big chunk of the preceding multi-year decline. IBM has been working for years to transform itself for the cloud computing era, divesting and de-emphasizing legacy businesses while investing in growth businesses like cognitive computing and analytics. When the company reports its first-quarter results after the market closes on April 18, investors will be looking for continued signs of progress.
Analysts aren't expecting IBM to return to revenue growth this year, with the average estimate calling for a 1.6% decline during the first quarter and a 1.5% decline in 2017. But the company does expect to return to earnings growth. Along with its fourth-quarter report in January, IBM guided for adjusted earnings of at least $13.80 per share, up from $13.59 in 2016. IBM should reaffirm that guidance on April 18, barring any surprises.
IBM's strategic imperatives, which include all of the company's major growth businesses, accounted for 41% of total revenue during 2016. Investors will be looking for continued double-digit growth, although that will become more difficult as the numbers get bigger. IBM's cloud business should also continue to expand quickly. During 2016, cloud delivered as a service reached an $8.6 billion annual revenue run rate, up 61% year over year.
IBM's turnaround is now showing tangible progress. The company will need to keep giving investors good news for the gains of the past year to stick.
There's a lot going on with mobile chip giant Qualcomm at the moment. The company is working to close its $47 billion blockbuster acquisition of NXP Semiconductors, a deal which, if successful, will make Qualcomm the leading supplier of automotive semiconductor products. At the same time, Qualcomm is facing multiple lawsuits from Apple as well as a complaint from the Federal Trade Commission charging the company with anti-competitive behavior.
All of this uncertainty has led the stock to tumble this year, down 13.5% year to date. When Qualcomm reports its fiscal second-quarter results after the market close on April 19, investors will be looking for both updates and reassurances that the company's lucrative licensing business will continue to throw off billions of dollars of profit each year.
Analysts are expecting a solid quarter from Qualcomm, calling for 6.8% year-over-year revenue growth and non-GAAP EPS of $1.20, up from $1.04 during the prior-year period. Qualcomm sees a good year for the licensing business ahead, predicting a 7% increase in global 3G/4G device shipments in 2017. With licensing accounting for the vast majority of Qualcomm's pre-tax profit, that should be music to shareholders' ears.
When Intel reports its first-quarter results after the market closes on April 27, it will need to convince investors that it can continue to thrive despite the emergence of real competition in both the PC and server chip markets. Advanced Micro Devices launched the first of its Ryzen PC CPUs in March, and it will fill out its lineup with lower-end chips in the coming months. Reviews of Ryzen have been mixed, but the performance gap between Intel and AMD is now narrower than it's been in quite some time.
In the server chip market, Intel faces both AMD's upcoming Naples server chips as well as a significant push by the major cloud computing companies to support multiple architectures. Microsoft announced in March that it plans to use ARM server chips in its data centers, and Alphabet's Google announced last year that it was designing a server architecture that supported IBM's Power chips.
Analysts are expecting Intel to post both revenue and earnings growth during the first quarter, calling for a 7.3% year-over-year increase in revenue and a 20% increase in non-GAAP EPS. Given all of the threats Intel is now facing, the company's guidance and general outlook will be more important than the headline numbers. Whether Intel can continue to grow earnings in a far more competitive environment is an open question.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Timothy Green owns shares of IBM and NXPI. The Motley Fool owns shares of and recommends GOOG, GOOGL, AAPL, and Qualcomm. The Motley Fool has the following options: long January 2018 $90 calls on AAPL and short January 2018 $95 calls on AAPL. The Motley Fool recommends Intel and NXPI. The Motley Fool has a disclosure policy.