International Business Machines Corp. Earnings: What to Expect Wednesday

On Wednesday, IBM (IBM -0.56%) will release its quarterly report, and investors will be watching closely to see if the tech giant can finally get its sales moving higher after a long stretch of sluggishness. Although Cisco Systems (CSCO -0.52%) has faced some of the same challenges as IBM, Oracle (ORCL -1.02%) has found ways to find growth. IBM needs to work on getting its share of the growing cloud-computing and data-analytics pie in order to keep itself moving in the right direction.

IBM has a history of being ahead of the curve in technology, moving away from its historic hardware focus in a timely fashion before the bottom fell out of that market. Yet even as it has aimed to capture higher-margin services and provide value-added information for its customers, IBM nevertheless has had to deal with extensive competition from Cisco, Oracle, and other tech giants seeking to offer more integrated products. For its part, IBM needs to use its enterprise focus to its best advantage, reaching out to as many potential customers as possible. Let's take an early look at what's been happening with IBM over the past quarter and what we're likely to see in its report.

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Stats on IBM

Source: Yahoo! Finance.

Source: IBM.

When will IBM earnings bounce back?
Analysts have slashed their views on IBM earnings in recent months, cutting their first-quarter estimates by more than 20% even as they hold out hope that revisions downward for the full 2014 year will only be minimal. The stock has held its own, rising 6% since early January.

IBM's fourth-quarter earnings report showed the recent disconnect between the company's revenue and earnings. A plunge in hardware sales sent IBM's overall revenue down 5% from the year-ago quarter, even as net income came in better than most had expected. As IBM moves away from poor-performing hardware toward higher-margin services, shareholders will likely see even more downward pressure on sales -- but if profit margins improve, the boost to the bottom line should be substantial.

IBM made a big move in that direction during the quarter, announcing in January that it would sell its x86 server business to Lenovo for $2.3 billion. IBM isn't giving up entirely on servers, with mainframes and servers using proprietary IBM processors still giving the company hardware with which it can compete against Oracle's Sun products and other rivals. But the move tracks with what Oracle and Cisco Systems have done in emphasizing IT services.

Meanwhile, IBM is also pushing forward with multiple initiatives. Its Smarter Planet project helps businesses and governments use available data to make projections on a wide range of issues, ranging from infrastructure to marketing. IBM also announced a partnership with a French automaker to collect information for analysis that IBM hopes will improve safety and perhaps lead to automated driving. Perhaps most exciting was its BlueMix service, on which it's collaborating with a well-known business services company to use location-based data to gather improved analytics.

In the IBM earnings report, watch to see how the company keeps moving forward on the cloud-computing and big-data fronts. Even if revenue continues to sag, it's important for IBM to reignite its earnings growth. Otherwise, its rivals might catch up and surpass the tech giant and make it difficult for IBM to recapture its leadership position.

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