IBM, the No. 2 global technology company, is scheduled to report third-quarter results late Monday. They could be a bellwether for the entire technology sector.
Earnings are expected to rise about 14 percent to $3.22 a share from last year as revenue gains about 8 percent, to $26.27 billion.
Shares of the Armonk, N.Y.-based computer services giant have gained nearly 30 percent this year and nearly 33 percent over the past 52 weeks. By contrast, shares of Hewlett-Packard, the No. 1 tech company by revenue, have dropped 41 percent this year and about the same in the past 52 weeks.
Here's why IBM results will be important:
They will indicate overall technology direction. Besides sales of computer servers and software, IBM is also one of the world's biggest technology service providers. As well, its in-house semiconductor plants are among the world's largest and most efficient.
So if IBM is chugging on all cylinders, its performance may indicate where other leaders such as Intel, Microsoft and Texas Instruments are heading.
Results will indicate enterprise demand for technology. No longer in the consumer sector, IBM's computer services are essentially all sold to the enterprise sector, including governments worldwide. A key metric will be to see the pace of third-quarter sales, particularly in Europe, where there is great economic uncertainty, as well as demand for the fourth quarter, usually IBM's best.
So far, enterprise rivals such as Oracle have already reported solid enterprise demand. IBM competes against Oracle in database, analytics and application software.
Cash and investments. On June 30, IBM reported cash and investments around $11.9 billion. The third quarter number may indicate whether IBM could increase its dividend but also could suggest what's available to buy other companies. IBM increased its dividend 15 percent in the first quarter to 75 cents a share.
Another metric is how much of the cash is outside the U.S. because repatriation is expensive under U.S. tax law. That could indicate expansion abroad, as well as foreign investment. During the third quarter, it acquired Algorithmics of Canada for $387 million as well as Britain's Intelligence Analytics for an undisclosed amount.
IBM recently indicated it plans to spend billions more on chipmaking in New York.
As well, IBM sold an important patent portfolio to Google. Google, in its third quarter announcement, didn't disclose their value.
Management stability. While not expected, IBM could announce plans for CEO and Chairman Samuel Palmisano, 60, who has been CEO since 2002. It's conceivable he could announce plans to step down next year.
Compared to HP, which last month ousted its second CEO in 13 months, IBM has been extremely stable. But a strategic management change of any sort could spell uncertainty to one of the world's bellwether enterprises.
In late trading, IBM shares were at $186.38, down $4.19.