A strong report from IBM Corp, particularly a pick-up in technology services contracts that have been a weak point in the past year, could lift Wall Street's confidence in the technology sector.
While investors on Friday looked at Intel Corp's strong outlook with skepticism, due in part to the chipmaker's reversal of a bullish outlook last year, analysts said a solid report from IBM on Tuesday could encourage them to reconsider.
International Business Machines Corp is expected to report fourth-quarter revenue of $28 billion, up 3.8 percent from a year earlier, according to Thomson Reuters I/B/E/S. Quarterly earnings per share is expected to rise to $4.08 from $3.59 a year ago.
The Street also expects the company, the world's biggest technology services firm, to give a solid outlook for 2011, signaling improving demand for discretionary spending by global corporations.
Analysts forecast 2011 sales of $103 million, up 4 percent from 2010.
2011 could be a turnaround year for services as the macro improves, business confidence firms and enterprise IT spending increases accordingly, said RBC Capital Markets analyst Amit Daryanani.
The key focus for Wall Street will be whether IBM manages to reverse the decline in signings of services contracts, including bookings for outsourcing and other IT projects, which has been a major disappointment in recent quarters.
The weak signings had been seen as a signal of cautious spending among corporate clients and, for IBM, weak revenue growth ahead.
The key to quarterly results and investor confidence in 2011 will be positive results in the services segment, where we believe that prospects remain healthy, said Joseph Foresi at Janney Capital Markets.
Analysts said rival Accenture's strong revenue and outlook, announced in mid-December, was a sign IBM could also see strong services bookings.
IBM shares have risen just 6 percent in the past 3 months, despite expectations of a recovering U.S. economy, underperforming the S&P's 10 percent rise over the same period.
Analysts also said a strong outlook could make the shares look like an inexpensive bet. They closed on Friday at $150, below 12 times expected earnings, lower than Accenture Public Ltd Co's multiple of 15 and Oracle Corp's 14.
(Reporting by Ritsuko Ando; editing by Andre Grenon)