Though IBM (IBM -3.2%) reiterated its 2014 EPS guidance, it was "really reset lower" given the company lowered its full-year tax rate forecast to 20% from 23%, says Cowen's Moshe Katri, reiterating a Hold. "The big issue is IBM's legacy businesses are getting hit by multiple points."
Bernstein's Toni Sacconaghi reiterates an Outperform, but nonetheless states IBM's Q1 numbers "likely reinforced prevailing concerns about revenue growth, cash flow and earnings quality."
Wells Fargo (Market Perform) sees some silver linings: Services margins grew, WebSphere middleware sales were up 12% Y/Y, and cloud, security, and mobility sales are growing well. But it also notes services signings of $11.2B missed a $13B consensus, and that Power (-22% Y/Y), mainframe (-40%, six quarters into a product cycle), and Chinese (-20%) sales remain weak.
Mentioned on the CC (transcript): 1) IBM still expects to grow 2014 free cash flow from last year's $15B, in spite of producing just $600M in Q1. 2) Though $8.2B was spent on buybacks in Q1, full-year buybacks are expected to be less than 2013's $13.9B. 3) IBM's app outsourcing ops have seen "pretty substantial price pressure."
Cloud-related revenue (boosted by SoftLayer) rose 50% Y/Y, and is now on a $2.3B/year run rate, but that still makes it less than 3% of total revenue. Meanwhile, job cuts led opex to fall 8% Y/Y to $7.4B.