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IBM's hardware sales, pricing, earnings quality in focus post-earnings

IBM's (IBM - unchanged) Q2 hardware sales (-11% Y/Y vs. -23% in Q1,) "delivered meaningful upside" to Cantor's estimates, says analyst Brian White, while reiterating a Buy. Favorable comps and healthy mainframe/storage demand allowed the hardware unit to grow 39% Q/Q, or more than twice historical seasonal growth.

White also thinks IBM's Chinese revenue (-11%, hurt by NSA issues) has bottomed out. On the CC (transcript), IBM said it saw "a pretty good sequential improvement" in China and India, though it added other parts of Asia-Pac remained weak.

Citi's Jim Suva is less enthusiastic than White: He observes a one-time asset gain boosted EPS by $0.10, that Global Business Services outsourcing (-9%) remains weak due to price pressure and contract negotiations, and that services signings are down 33% (partly due to tough comps). He also notes mainframe growth isn't expected to continue.

Credit Suisse's Kulbinder Garcha, meanwhile, has doubts about "the quality" of IBM's forecast for $20 in 2015 EPS, given "results continue to be driven less by revenue growth and more by non-operational items."

Some bright spots: 1) With the help of SoftLayer, IBM's "cloud delivered as a service" revenue is now on a $2.8B run rate. That's roughly equal to 3% of total revenue. 2) Ahead of the Apple deal, "mobile revenue" (a nebulous term) is up over 100% YTD.

Prior IBM earnings coverage.

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