IBM (IBM) reports quarterly earnings January 22nd. Analysts expect revenue of $21.8 billion and eps of $4.84. The revenue estimate implies double-digit growth Y/Y. Investors should focus on the following key items.

Where Will Revenue Growth Come From?

In the past IBM had been known for consistent declines in revenue. However, the company has reversed this trend. Through the first nine months of 2018 IBM generated revenue of $57.8 billion, up 2% Y/Y. The question remains, “Is top line growth sustainable?” In Q3 2018 the company’s revenue of $18.8 billion was down 2% Y/Y.

Two of the company’s five core operating segments experienced revenue growth. Revenue from Cognitive Systems revenue was down 6% Y/Y. This segment was stymied by a decline in revenue from Solutions Software and Transaction Processing Software. Global Business Services (“GBS”) revenue was up 1% on increased consulting revenue and high single-digit growth in revenue from GBS strategic imperatives. Technology Services is the largest segment at over 40% of total revenue. This segment experienced a 2% decline in revenue; growth in revenue from hybrid cloud implementations was offset by a decline in revenue from technical support services.

Over the past 12 months the company realized 13% growth in revenue from strategic imperatives (analytics, cloud, mobility). Such revenue growth out-stripped total revenue growth. This is a good thing. I suspect margins on these value-added products are more robust than revenue from IBM’s older, more established products. Read more:

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