IBM (IBM) is scheduled to report results of its fiscal third quarter after the market close on October 19, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. GUIDANCE: Earlier this month, IBM reported preliminary third quarter earnings per share of $2.58 on preliminary revenue of $17.6B. At the time, analysts were expecting the company to report Q3 EPS of $2.58 on revenue of $17.54B, and those estimates remain unchanged. Of note, IBM said with its last report that it is still not providing guidance for fiscal 2020, adding at the time that it is "not immune" to the challenges of the macroeconomic environment.
2. SPINOFF: On October 8, IBM announced that, as part of its efforts to accelerate its hybrid cloud growth strategy, it will separate its Managed Infrastructure Services unit of its Global Technology Services business into a new public company. The new company, which has yet to be named, will be entirely focused on managing and modernizing client-owned infrastructures and will leverage its expertise to offer hosting and network services, services management, infrastructure modernization, and migrating and managing multi-cloud environments. The proposed separation is expected to be effected through a pro-rata spin-off to IBM shareowners that will be tax-free for U.S. federal income tax purposes, IBM said. The transaction is subject to customary closing conditions, including Form 10 registration with the U.S. Securities and Exchange Commission, receipt of a tax opinion from counsel, and final approval by IBM's board of directors. The separation is currently expected to be completed by the end of 2021. Following separation, the companies together are initially expected to pay a combined quarterly dividend that is no less than IBM's pre-spin dividend per share. Following the completion of the separation, each company's dividend policy will be determined by its respective board of directors.
3. WSJ REPORT: A few days after the spinoff announcement, the Wall Street Journal's Asa Fitch reported that IBM CEO Krishna's bet on a corporate divorce may be risky, as tech history shows the outcome can be disappointing. Like "many other" spinoffs, the separation comes with execution challenges, Fitch said, noting that the company will lose another several billion dollars in quarterly sales with the spinoff, though some observers believe the move is "long overdue."
4. GLOBAL PC SHIPMENTS: Last week, the International Data Corporation, or IDC, said that the continuity of business and online schooling in the midst of the current pandemic has led to double-digit growth in the traditional PC market, comprised of desktops, notebooks, and workstations, as global shipments grew 14.6% year over year to 81.3M units in 3Q20. "Consumer demand and institutional demand approached record levels in some cases," said Jitesh Ubrani research manager for IDC's Mobile Device Trackers. "Gaming, Chromebooks, and in some cases cellular-enabled notebooks were all bright spots during the quarter. Had the market not been hampered by component shortages, notebook shipments would have soared even higher during the third quarter as market appetite was yet unsatiated."
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