UBS' Steve Milunovich, who downgraded IBM (IBM -6.8%) to Hold following its $1.07B Q3 revenue miss: "Results could improve as 2014 unfolds, but the next two quarters likely won’t be too encouraging ... Normally we would wait out mediocre results ... but there are too many questions this time." He observes IBM was only able to maintain full-year EPS guidance because of the $0.40/share Q3 boost provided by a lower tax rate.
SocGen (Hold) thinks IBM might once more turn to M&A to lift growth. In particular, the firm considers major app software purchases a possibility as database and middleware sales are pressured by the cloud transition. IBM's middleware sales rose 1% Y/Y in Q3, and "information management" sales (inc. databases) rose 2%. OS sales, hurt by server weakness, fell 4%.
CLSA is staying bullish, praising IBM's efforts to deal with industry pressures by making large analytics/cloud investments. Wells Fargo (Market Perform) expects a new buyback to be announced on Oct. 29, but also thinks "visibility to the 2015 $20 EPS target has become murkier."