The first round of earnings reports by major technology providers in 2018 kicks off Thursday, with IBM Corp. expected to set the stage for what optimists hope will be another season of good tidings.

There’s reason to believe they’ll be rewarded. Gartner Inc.’s just-released annual spending forecast projects that worldwide information technology investments will total $3.7 trillion in 2018, up 4.5 percent from the previous year. Research by Morgan Stanley forecasts that IT budgets will grow nearly 5 percent this year, up from 4.4 percent growth in 2017. Worldwide software spending is projected by Gartner to grow a handsome 9.5 percent.

And there’s plenty to spend on. Among the technologies fueling the increase are digital business, blockchain, the internet of things and machine learning.

It was hard to find much bad news in reports from the majors in 2017. The big players got bigger, but even the smaller guys didn’t do too badly. For now, the tide of cloud adoption is lifting all boats. Worldwide public cloud computing revenue was on track to come in at $260 billion last year, up more than 18 percent from 2017.

Software makers have mostly completed the painful process of shifting their businesses from licensing to subscription models, and hardware makers are doing a brisk business selling to cloud providers. Rapid expansion tends to cover up inefficiency, so the big question is how long the cloud market can maintain its torrid pace of growth. Once consolidation sets in, the winners and losers will emerge.

Here’s what the prognosticators are saying about selected upcoming earnings reports, mostly those of enterprise-oriented companies:

IBM

Wikibon analyst Neil Raden recently predicted that IBM will reassess its cognitive computing strategy in light of the “dismal performance of Watson,” its deep learning computer. That opinion can’t have brightened spirits at IBM, which has pinned much of its future on an artificial intelligence-based strategy it calls “cognitive computing,” with Watson at its core.

Although IBM’s analytics business – which includes Watson – was a weak point in an otherwise upbeat report for the third quarter of 2017, other factors indicated the company may have turned the corner. IBM’s rate of revenue decline was the lowest in five-and-a-half years, and executives hinted that growth could come this quarter. A mainframe product refresh cycle in the fourth quarter may help end the sales slide, but a more important indicator of long-term growth in what the company calls its “strategic imperatives,” which include cloud computing, analytics, mobile and security. They comprised 45 percent of IBM’s total revenue in the most recent quarter.

“Q4 is the time to show some growth, if it’s ever coming,” said Ralph Finos, a Wikibon analyst. He’s expecting revenues to edge up 1.3 percent, fueled by a short-term surge in mainframe sales. However, IBM still has “significant problems,” Finos said, including a large and low-margin technical services business. IBM is reportedly planning a major overhaul of those operations soon.

Charles King, president and principal analyst at Pund-IT Inc., is more upbeat. IBM has undertaken a “radical” reinvention in recent years that has “mostly flown beneath the radar,” he said. The company has done so while growing its dividend by nearly 50 percent to stay in the good graces of institutional investors. King said the success of the cognitive computing initiative will be in vertical industries, something many observers don’t understand. And despite IBM’s also-ran perception in cloud, King believes the company is doing quite well in that market as well.

The success of cloud competitors like Amazon Web Services Inc., Microsoft Corp. and Google LLC in targeting IBM’s enterprise customer base “doesn’t appear to be coming at IBM’s expense,” King said. “So is it time to turn out the lights? Hardly. Instead, I’d suggest grabbing some popcorn and watching one of the market’s most fascinating transformations continue.”

Barclay’s apparently agrees. The firm today upgraded its outlook for IBM, saying the company could emerge as the next major cloud infrastructure player.

ServiceNow

With 91 percent of its revenue derived from subscriptions, cloud-based workflow automation and service management software maker ServiceNow Inc.’s business model is miles ahead of most of the rest of the industry. Forecasts of a modest slowdown in growth that the company issued with its previous earnings announcement in October temporarily spooked investors, but the stock has since resumed its upward march, climbing about 15 percent in the past quarter.

The big question: How long can a $2 billion company maintain a 40 percent growth rate? Analysts are expecting earnings of 35 cents per share on revenue of just under $535 million in the just-ended quarter, which will be reported Jan. 24. If history is any guide, ServiceNow will comfortably exceed their forecasts.

Intel

Intel Corp. rang in the new year by admitting that its processor chips have contained some fundamental flaws for years, but it’s too early to tell whether the news well put a dent in its business when the chip giant reports its earnings on Jan. 25.

The company’s more pressing concerns are competitive, including advances by rival Advanced Micro Devices Inc. in the data center and the exploding popularity of graphics processing units chips, of which Nvidia Corp. is currently the undisputed king. Nevertheless, Intel recently said its product line is as strong as it has ever been, and the company has been moving aggressively to shore up its weak spots, even going so far as to link up with AMD to take on common foe Nvidia.

Intel has gradually been shifting its focus away from the commodity desktop market in favor of the data center, which Chief Executive Brian Krzanich proclaimed last quarter is the company’s “growth engine.” Yet it could also be Intel’s greatest area of vulnerability, should the Meltdown and Spectre flaws spook enterprise buyers. “Complete transparency and a clear focus on customer needs is the way for Intel to go” in light of the vulnerability problems, said Pund-IT’s King. “The company doesn’t want to risk Spectre and Meltdown turning into a fiasco like 1994’s Pentium floating point bug,” he said.

Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, doesn’t see much risk of that happening. “Fixes are available for 90 percent of their products made over the last five years,” he said. “Maybe federal governments will negotiate some returns, but I just don’t see this leaving a mark.”

Analysts are predicting a profit of 86 cents per share on flat revenue of $16.34 billion. Intel easily blew away forecasts last quarter. Another strong report would indicate that the company is well-positioned to weather any storm from the chip flaws.

SAP

SAP CEO Bill McDermott

Until recently, it seemed that SAP SE, which reports on Jan. 30, could do no wrong. But the enterprise software planning giant disappointed investors in October by announcing a slowdown in both software license and cloud revenues. That one-two punch indicated that the core business may be under some pressure despite the continued raging success of SAP’s S4HANA business suite.

CEO Bill McDermott deflected criticism, saying the company is “growing faster in the cloud – and we are doing it organically,” but the 19 percent growth rate in cloud subscriptions seemed modest in light of the 40 percent-plus growth rates some other software companies have reported.

“It’s hard to tell whether SAP simply tripped or experienced a cyclical slowdown,” in the previous quarter remarked Pund-IT’s King. He speculated that the recent launch of new Intel silicon for the data center may have prompted customers to hold off on purchases of HANA until new systems are available.

Analyst Moorhead sees a few rough quarters ahead. “SAP is trying very hard to retrench into cloud first businesses, but its progress has been slower than investors would like,” he said. “I don’t see this upcoming quarter being different from the prior one.”

Financial analysts appear to agree. They’re forecasting tepid growth for the quarter, which Intel reports on Jan. 30, of 3.5 percent, to $8.38 billion.

Microsoft

Microsoft, which reports its first quarter on Jan. 31, spent 2017 vanquishing critics who claimed it isn’t serious about cloud computing, open-source and other one-time threats. With revenue growth of 12 percent in the fourth quarter and a cloud computing business that’s on track to exceed $20 billion this year, the company left no doubt that it has successfully completed its transformation from a maker of shrink-wrapped software to a cloud giant. In fact, when Microsoft’s huge software-as-a-service business is taken into account, the company is now the No. 1 cloud vendor, although it’s still a distant No. 2 to Amazon Web Services in cloud infrastructure.

The growth of the Azure cloud has been breathtaking; revenues climbed 90 percent in the most recent quarter after nearly doubling the quarter before that. Microsoft is on track to derive 20 percent of its revenues from its commercial cloud this quarter, up from just 5 percent three years ago. Investors are giddy. After trading in a narrow range for 15 years, Microsoft stock broke out in mid-2015 and has more than doubled since then.

The company’s Trojan horse has been its lineup of office productivity and enterprise applications, which grew 28 percent last quarter to $8.2 billion. Microsoft Office now derives more revenue from the cloud than the desktop, and the company uses its dominant market position to crank open the window for Azure sales. Analysts are expecting overall healthy sales growth of nearly 9 percent to $28.4 billion for the fourth quarter. “I’m not expecting anything but a carbon copy of the last quarter, except for a few nips and tucks here and there,” said Moorhead.

For a company that had been widely dismissed as irrelevant three years ago, the turnaround has been remarkable. “Microsoft appears to be emulating the Little Train that Could quarter after quarter,” said Pund-IT’s King.

Amazon

AWS CEO Andy Jassy (Photo: Robert Hof/SiliconANGLE)

Although cloud computing represents a small minority of the revenues of Amazon.com Inc., it’s the primary engine of growth and the most closely watched metric in the company’s quarterly reports. That’s for good reason: Cloud revenue grew 42 percent to $4.58 billion in the most recent quarter, with the $1.17 billion in cloud operating profit more than compensating for an $824 million loss in Amazon’s other businesses, mainly overseas ecommerce. That’s a situation that’s expected to continue when Amazon reports its fourth-quarter results on Feb. 1.

AWS continues to reel off a breathtaking string of customer wins. This week it notched Comcast Cable, the flagship business subsidiary of Comcast Corp., in its belt as the media company’s preferred provider. That’s on top of other recent signings that include Turner Broadcasting System Inc., the National Football League, The Walt Disney Co., Expedia Inc. and Intuit Inc.

Shock and awe are Amazon’s preferred tactics in hammering home its cloud dominance. At the recent Re:invent conference in Las Vegas, the company announced 22 new services covering everything from new EC2 computing instances and storage services to machine learning and cloud databases. Amazon stated goal is to be the master onramp to the cloud for whatever customers hope to accomplish.

In order to continue its torrid share-price growth — the stock is up more than 50 percent over the past 12 months — Amazon must continue to dominate the cloud, said King. “Although Amazon is massively dominant in the online retail market, that portion of its business has had trouble being profitable,” he said. “If Amazon’s cloud position ever betrays substantial problems, that could impact how investors perceive its overall business.”

King cited a report by KeyBanc Capital Markets Inc. last week that said AWS’s public cloud market share has slipped from 68 percent to 62 percent, with Microsoft being the principal beneficiary. At the rate the overall cloud pie is growing, however, Amazon will still rake in huge profits. “As workloads shift to the cloud, Amazon and Microsoft remain best-positioned to gain incremental percentage of IT budgets,” Morgan Stanley wrote.

Amazon is effectively diversifying into new markets such as streaming video and embedded systems based upon its Echo voice-recognition technology, Moorhead said. “I’m expecting a knockout revenue quarter on both the AWS and retail fronts,” he said. Analysts are calling for holiday-fueled sales growth of nearly 37 percent to quarterly sales of almost $60 billion.

Alphabet

Google owner Alphabet Inc. which reports its fourth quarter on Feb. 1 as well, doesn’t break out cloud revenues. But the “other revenues” category in its most recent earning report, of which the cloud business is a significant part, rose 40 percent, to $3.4 billion.

Nevertheless, the company continues to struggle to be taken as a serious alternative to both AWS and the more enterprise-oriented Microsoft. But it’s chipping away with a focus on cloud apps such as G Suite and on making artificial intelligence available to the masses. Its new AutoML service, which was announced Wednesday, is an example of the latter. It brings drag-and-drop simplicity to the process of building machine learning models that recognize images.

Success in the enterprise cloud business won’t make or break Google, which derives 90 percent of its revenues from its phenomenally profitable advertising business. But the company continues to play up its intentions to strengthen its commercial cloud position. Alphabet Chief Financial Officer Ruth Porat told analysts last quarter that the cloud business is generating the highest percentage growth of all of the company’s product lines.

Will Alphabet go to the next step and start breaking out cloud revenues for comparison with its competitors? Moorhead believes it must eventually do so. “At some point, if Alphabet doesn’t start giving some positive granularity on enterprise cloud like Amazon and Microsoft, analysts could go bearish on them,” he said. Alphabet will be gunning for analyst estimates of $31.85 billion in quarterly revenue, up 22 percent from a year ago.

Apple

Although Apple Inc. is almost single-mindedly focused on consumers with its iPhones, iPads and Mac computers, its influence on the entire tech sector, especially component suppliers and developers, is so pervasive that it’s worthy of everyone’s attention.

Indeed, as it reports its fiscal first-quarter results on a jam-packed Feb. 1, all eyes will be on how the flagship iPhone X smartphone is selling, especially in China. It’s reported to be especially popular there, outpacing the 8 and 8 Plus models. Overall, Apple is expected to earn a profit before certain costs such as stock compensation of $3.77 a share, on a 10 percent rise in revenue from a year earlier, to $86.3 billion.

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