Category Archives: stocks

Here’s Why IBM Fell Despite A Solid Q1 Earnings Beat

IBM ( IBM ) closed down 5.6% at 144 Tuesday, following a first-quarter earnings report late Monday that beat estimates but still left room for concern. IBM has been undergoing a major transition, shedding older technologies while making a concerted push into growth areas such as cloud computing, Big Data analytics, security and mobile computing — areas it calls strategic imperatives. The transition helps explain why revenue growth has declined each quarter for the past four years. In its Q1 earnings results, IBM reported revenue of $18.7 billion, down 4.6% from the year-earlier quarter but edging the Wall Street consensus estimate of $18.3 billion. Revenue from strategic imperatives rose 14%. Total cloud revenue rose 34%. Earnings per share ex items of $2.35 easily beat views of $2.09, as polled by Thomson Reuters, but were down 19% and marked the fourth quarter in a row of EPS declines. IBM stock fell in the stock market today presumably on the view that Q2 expectations are below estimates. IBM does not provide formal quarterly guidance, but its implied EPS guidance of $2.85 for Q2 is below the consensus estimate of 3.01. Despite the Q1 beat, IBM did not increase but instead maintained its full-year earnings outlook. IBD’s Take: How healthy is IBM’s stock and how does it stack up vs. rivals? Find out at IBD Stock Checkup RBC Capital Markets analyst Amit Daryanani maintained a sector perform rating on IBM stock, and a price target of 155. “We believe the competitive challenges are emerging from companies seeking to build a business model similar to IBM’s, notably Hewlett-Packard Enterprise ( HPE ), Cisco ( CSCO ), Oracle ( ORCL ), EMC ( EMC ), and Dell,” he wrote. Of these competitors, he said, Hewlett-Packard is the closest. Another is Cisco. ‘Attempting To Recreate The IBM Model’ “Beyond Hewlett-Packard and Cisco, there are also others attempting to recreate the IBM model,” he wrote. A harsher report on IBM came from Credit Suisse analyst Kulbinder Garcha, who reiterated an underperform rating and a price target of 110 on IBM stock. “We believe the quality of earnings was again low and the manner in which IBM has chosen to manage its business seems unsustainable,” Garcha wrote. “We believe the secular and structural challenges facing IBM remain, and specifically see limited improvement in Services and Software margins.” UBS analyst Steven Milunovich maintained a neutral rating on IBM but raised his price target to 150 from 132. “The quarter was mixed with revenue and EPS beating due to currency improvement, acquisitions, and the Japan tax rebate,” he wrote. “We give IBM credit for changing the narrative,” with an emphasis on becoming a leader in the new category of Cognitive Computing, which includes its Watson computer business, he wrote. Drexel Hamilton raised its revenue forecast, maintained its EPS projection and raised the price target to 166 from 160.

Intel Will Slash Up To 12,000 Jobs After Q1 Sales Miss On PC Woes

No. 1 chipmaker Intel ( INTC ) lagged Wall Street’s Q1 revenue expectations late Tuesday on PC sales that grew minimally vs. the year-earlier quarter, and announced that up to 12,000 positions would be cut by mid-2017. The 12,000-cut represents 11% of Intel’s global workforce and will require “a combination of voluntary and involuntary departures and a re-evaluation of programs,” according to the press release. Most affected employees will be notified within 60 days. And CFO Stacy Smith will move to a “broader, new role within Intel” leading sales, manufacturing and operations, and reporting directly to CEO Brian Krzanich. Smith will remain in his role pending a formal CFO search, Krzanich said on Intel’s conference call with analysts, after it released results. Intel stock was down more than 2% after hours, having closed down 0.2% during the regular session. Shares are weaker by 8% for the year, having rebounded from a slide in January and mid-February amid reports of weak Taiwanese ODM sales. Krzanich detailed the restructuring in an email to employees, highlighting Intel’s stepping away from PCs to focus on high-growth segments like the data center, Internet of Things and memory which, together, brought in $2.2 billion in revenue growth in 2015. “We are evolving from a PC company to a company that powers billions of smart, connected devices,” Krzanich said on the call. “We do not take these changes lightly. We will be saying goodbye to employees who have played a great role in Intel’s success.” By restructuring, Intel plans to save $750 million in the first year, with an annual run rate savings of $1.4 billion by mid-2017, allowing Intel to “intensify” its investments in its key growth areas. Ultimately, “we expect an even more profitable client computing group (PC),” Krzanich added. PC sales comprised 55% of Intel’s Q1 sales, but have struggled in recent quarters amid stiff tablet and two-in-one competition. Q1 Sales Lag, But EPS Tops For Q1 ended April 2, Intel reported $13.7 billion in sales and 54 cents earnings per share, up 7% and 20%, respectively, vs. the year-earlier quarter. EPS topped analyst expectations by more than a nickel, but sales missed. The consensus of 45 analysts polled by Thomson Reuters modeled $13.83 billion in sales (against Intel’s non-GAAP revenue of $13.8 billion) and 48 cents EPS, in line with Intel’s earlier view for $14 billion in sales, plus or minus $500 million. Nonvolatile memory sales declined 6% vs. the year-earlier quarter, underperforming the struggling PC unit, which managed to climb 2% year over year. Intel’s high-growth units — data center and Internet of Things — grew a respective 9% and 22% year over year. Security sales popped 12% vs. the year-earlier quarter. Krzanich didn’t address recent rumors that Apple ( AAPL ) might tap Intel to supply 30 million-40 million iPhone 7 modems — a development that had sent Intel’s stock jumping. Qualcomm ( QCOM ) typically sources the iPhone modem and would retain the lion’s share of the iPhone 7, analysts say. Analysts largely doubt Intel’s mobile strategy, which hasn’t yet played out. But Krzanich, on the call, defended the mobile unit, which he said “is absolutely continuing to grow for us as a segment, and we’re increasing our profitability.” For the current quarter, Intel guided to $13 billion to $14 billion in sales, which would be up 2% at the midpoint vs. the year-earlier quarter. The company reduced its full-year guidance to mid-single-digit growth. Earlier, Intel saw mid- to high-single-digit growth. Pacific Crest and S&P Global Market Intelligence analysts had expected Intel to cut its full-year guidance on the ebbing PC market, which industry trackers IDC and Gartner recently saw dipping 11.5% and 9.6%, respectively, in Q1 shipments. Days after the forecasts emerged, rumors cropped up that Intel might be prepping to cut thousands of jobs. Image provided by Shutterstock .

Yahoo Earnings Fall Less Than Expected; No Update On Takeover Bids

Giving no specifics on its efforts to find a buyer for its core, and perhaps other, businesses, Yahoo ( YHOO ) late Tuesday reported Q1 earnings and revenue that topped Wall Street expectations despite what its CEO called “substantial noise.” Yahoo stock was up 1.5% in after-hours trading Tuesday after the company released its earnings, though its Q2 revenue outlook lagged analyst expectations. “Over the past two months, (CFO) Ken (Goldman) and I have spent time in person and on the phone with interested participants,” Yahoo CEO Marissa Mayer said on the company’s earnings conference call. “We personally answered hundreds of requests for information. We are moving forward at the fastest possible pace.” The company reportedly had set a deadline of Monday for bids by potential acquirers, as the company has put all options on the table after failing to generate consistent revenue growth over the past decade. Verizon Communications ( VZ ), which owns AOL, reportedly is among the most active bidders. For Q1, Yahoo said that its earnings per share minus items fell 47% to 8 cents from 15 cents in Q1 2015, but analysts polled by Thomson Reuters had expected just 7 cents. Revenue fell 11% to $1.09 billion, in the upper end of Yahoo’s guidance range of $1.05 billion to $1.09 billion and just above the $1.08 billion that analysts had expected. Yahoo posted revenue minus TAC — traffic acquisition costs, or what Yahoo must pay to other sites to carry its ads — of $859.38 million, down 17%. That’s above the $847 million that FactSet had forecast. But it’s below the $1.04 billion in ex-TAC revenue that Yahoo reported in Q1 2015. For Q2, the company forecast revenue of $1.05 billion to $1.09 billion, down 14% at the midpoint and lagging consensus views of $1.102 billion. Despite “substantial noise,” Mayer said on the conference call, the company has “made great progress.” CEO Said Company Aligned On Top Priority “Our 2016 plan is off to a solid start as we continue to focus on driving efficiency, lowering costs and improving long-term growth,” Mayer said in the company’s earnings release. “In tandem, we made substantial progress toward potential strategic alternatives for Yahoo. Our board, our management team and I are completely aligned on this top priority for shareholders.” Yahoo has formed a strategic review committee of independent directors to consider strategic alternatives for the company and for its big stakes in China’s Alibaba Group ( BABA ) and in Yahoo Japan. Yahoo stock fell a fraction in Tuesday’s regular session, to 36.33, but it’s up nearly 40% since touching a nine-month low in early February. S&P Global Market Intelligence analyst Scott Kessler, in a research report last week, said that he was bracing for disappointment, “given continuing fundamental challenges and questions about company leadership.” At the time, Kessler downgraded Yahoo stock to hold from buy. On the other hand, Yahoo stock received at least two price-target boosts in the past two weeks. Pivotal raised its price target to 40 from 35, primarily due to recent gains by Alibaba. Most of Yahoo’s value comes from its 15% stake in the China e-commerce titan. Yahoo’s total market cap is about $34 billion. SunTrust Robinson Humphrey analyst Robert Peck raised his price target to 44 from 40 on April 13 and maintained a buy rating, citing “hidden assets” that could drive up the bidding price for the struggling Web portal. Those assets, Peck said, include royalties from Yahoo Japan, thousands of patents and plentiful real estate. Minus a “potential upside” from those assets, SunTrust expects Yahoo to fetch bids in the $6 billion to $8 billion range for its core business. Some reports estimate that as many as 40 groups have expressed interest in the wilting Sunnyvale, Calif.-based Web portal, although Fortune said in a report on Friday that the number was too high. News site Re/Code said that documents Yahoo provided to potential bidders predict that Yahoo’s 2016 revenue will fall nearly 15% and its earnings by more than 20%. On Tuesday, Goldman said that Yahoo’s head count, including contractors, was down 42% from the start of 2012 to 9,200, and the company continues to cut costs. Yahoo reported that its revenue from Mavens rose more than 6% to $390 million and accounted for 38% of total revenue, up from 33% in Q1 2015. Mavens refers to Yahoo’s revenue from mobile, social, video and native advertising, where revenue is growing. The company hopes that the segment will offset declining revenue from its legacy advertising.