For tech companies like IBM, their tax rates may go up this year under the new bill

Earnings


For technology companies, specifically those offering services and software, the new tax bill could end up raising their tax rates this year.

Bernstein warned of this effect on IBM in a note to clients Tuesday.

The enterprise tech company’s normalized tax rate could rise from 15 percent to “perhaps closer to 20 percent or more,” analysts Toni Sacconaghi and Daniel Chen wrote. They pointed out that Accenture has said its 22-24 percent tax rate will be flat or go up.

“On net, we believe that IBM’s normalized rate is greater than 15 percent, even before tax reform, and IBM may have been rightfully pulling forward the use of its foreign tax credits ahead of tax reform, as companies like HPE have done,” the analysts wrote, referring to Hewlett-Packard Enterprise.

Additionally, the company might have to make a one-time accounting charge because of a write-down of deferred tax assets, among other things, the analysts wrote.

Overall, they said they think IBM could come out as a “loser” in tax reform, which passed in late December, as companies with low tax rates and some services companies could see rates stay the same or go up, they said.

The Bernstein analysts are expecting $13.51 in earnings per share, excluding certain items, and they point out it is below the consensus estimate of $13.88.

IBM did not immediately respond to a request for comment.

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