UBS Expects a Tough Quarter for Enterprise Hardware: (IBM), (AKAM), (RAX), (STX) and (WDC)

UBS analyst Steven Milunovich today previewed the upcoming earnings season for IT Hardware stocks:

On IBM (NYSE: IBM), UBS is in line with consensus at revenue of $19.8bn and EPS of $3.30. Third quarters have been tough in software the last couple years and they look for software to be down 8%. Operating system and other middleware should be a drag but mainframe should be strong on an easy comparison. We look for the crossover between rising strategic imperative and declining core franchise revenue to occur in early 2017.

Akamai (NASDAQ: AKAM) is facing a transition year due to investments for OTT. They look for revenue of $552mn and non-GAAP EPS of $0.58. Last year’s period benefited from game releases, World Cup, and Ice Bucket Challenge so growth expectations are muted. Expectations are just for 11% YoY growth including the benefit of Windows 10 downloads.

Rackspace (NYSE: RAX) is a company in transition with a reduced 2H view, so expectations are for revenue of $503mn (+9%) and EPS of $0.22. The big news for RAX is the deal to service AWS clouds but UBS reduced its F16 estimate by $0.11 to $1.09 on concerns that customers might not use RAX hosting.

Seagate (NYSE: STX) and Western Digital (NYSE: WDC) are falling victim to weakness in PCs and UBS expects them to come in at the low end of the range. UBS has a Sell rating on both companies.

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