IBM, which sells everything from giant mainframe computers to tiny microchips to software, likely signed about $12 billion to $13 billion in new services deals in the fourth quarter, shy of a $14 billion target, Bear Stearns analyst Andrew Neff said in a research note.
IBM derives about half of its revenue from computer services, making the signing of new deals closely watched on Wall Street as a measure of revenue growth in future quarters.
It does not necessarily correlate with earnings, Neff said. IBM has long been criticised for allowing its revenue to stagnate and improving earnings through share buybacks or cost cuts.
IBM Chief Financial Officer John Joyce said during the company's third quarter earnings call in October that $14 billion was a "good working number" for new services contract signings during the fourth quarter. In early December, during an analyst meeting, neither Joyce nor IBM services head Doug Elix would confirm the number for investors.
Neff, who rates IBM shares "peer perform," said he the thought $12 billion to $13 billion includes about $5 billion worth of deals announced during the quarter, about $5 billion worth of short-term contracts and another $1 billion to $2 billion in unannounced deals.
Neff said the estimate included a 10-year deal with retail company Target Corp IBM announced on Wednesday without disclosing the terms. His estimate ahead of news of that deal was for new contracts worth $11 billion to $12 billion.
Armonk, New York-based IBM typically discloses the size of new services contracts during its quarterly earnings announcements. It is due to report fourth quarter results in mid-January.