The Zacks Analyst Blog Highlights: IBM, Netflix, Cisco Systems, Arris Enterprises and Google

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Jul 18, 2013, 09:30 ET

CHICAGO, July 18, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include IBM (NYSE:IBM-Free Report), Netflix Inc. (Nasdaq:NFLX-Free Report), Cisco Systems Inc. (Nasdaq:CSCO-Free Report), Arris Enterprises Inc. (Nasdaq:ARRS-Free Report) and Google Inc. (Nasdaq:GOOG-Free Report).

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Here are highlights from Wednesday's Analyst Blog:

IBM Reports, $1B Charge Makes It a Loss

There's a big difference in what IBM (NYSE:IBM-Free Report) reported in its headline number for its fiscal 2nd quarter after the bell Wednesday compared with the way Zacks reads the data: IBM reported earnings per share of $3.91 in the quarter, but without including a major, $1 billion workforce rebalancing charge. Including this charge, IBM reported earnings of $3.22 per share.

That's a pretty big difference. And while many companies -- particularly in the tech industry -- often report non-GAAP headlines, not including stock-based compensation, etc., it's not often the special item(s) in a quarter take a company's bottom-line from a beat to a miss. Add to that IBM's miss on the revenue side -- $24.9 billion versus $25.3 billion expected -- and we show Big Blue missing on both ends of its second quarter report.

Even that's really not too big a deal; when you're counting tens of billions in sales per quarter, a few million here or there can be seen as relatively in-line overall. But looked at from the point of view that IBM had posted positive surprise after positive surprise on the EPS side every quarter year after year, the fact that this is the second moderate miss in a row may raise an eyebrow or two -- especially considering shares are still trading up around their all-time highs.

Clearly the after-market is unfazed by this. IBM is trading back up at $200 per share, up roughly 3% just since the earnings announcement. And this was after a moderately up regular-trading day.

The company certainly has a lot to look forward to: services overall were down 1% but services signings rose 20%, indicating better things to come. Software sales were up 5%. Its System Z mainframe server should help bolster its hardware business. Also, IBM rose its guidance for fiscal 2013 slightly, but this again excludes the big workforce rebalancing charge. That said, pull the band-aid off quickly and it won't hurt as much later.

Analysts have been mixed on IBM lately: there is an upward revision for fiscal 2013 over the past couple months, and even more for fiscal 2014, but there has been an overall downward bias with respect to revisions. Pre-earnings, IBM has a Zacks Rank #3 (Hold).

Set-Top Box Market Flourishing

The set-top box market is expected to flourish in the near future. According to the research firm, IHS, this market will continue to improve through 2015. This is primarily attributed to increasing deployment of HD set-top boxes, multimedia home gateways and several other forms of digital set-top boxes in the customer premises by the cable TV operators.

In the U.S., cable operators are facing fierce competition from online video streaming service providers. Leading video streaming operators like Netflix Inc. (Nasdaq:NFLX-Free Report), Hulu.com and YouTube etc. have become a severe threat to cable TV operators. These online videos provide an extremely cheap source of TV programming unless the customer is eager to see real-time programs like sports events. This business model is gaining momentum, especially in the ongoing economic uncertainty.

In order to counter the threat by the online video streaming providers, cable TV operators are gradually offering multi-screen video services. Video services are now available in PCs, laptops, tablets, smarphones and other pocket digital devices. For this, the cable TV operators mainly depend on superior quality set-top boxes or video gateways.

IHS estimated that the global set-top box shipment will grow 8% year-over-year to 269 million units in 2013 from 250 million units in 2012. This is further expected to increase 6% in 2014 to 286 million units and another 1% in 2015 to 290 million units. Moreover, IHS also estimated that the global set-top box revenues will reach a record-high $22.2 billion in 2013.

According to research firm, Infonetics, the worldwide video gateway market size may leap from a mere $97 million in 2012 to around $3.6 billion in 2017. Cisco Systems Inc. (Nasdaq:CSCO-Free Report) is a major player in the video infrastructure market. However, recently, Arris Enterprises Inc. (Nasdaq:ARRS-Free Report) has become a major competitive threat to Cisco after its acquisition of the set-top box business of Motorola Mobility, a subsidiary of Google Inc. (Nasdaq:GOOG-Free Report).

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