IBM on Wednesday reported quarterly sales that beat analysts’ estimates, driven by higher-than-expected sales growth in the Company’s Software and Infrastructure segments. Here’s how the company did it:
- Merits: $3.60 per share, adjusted, versus $3.60 per share as expected by analysts, according to Refinitiv.
- Revenue: $16.69 billion versus $16.4 billion expected by analysts, according to Refinitiv.
Analysts had expected IBM’s overall revenue to fall for the first time in two years, but it was flat, according to a statement. Net income rose 16% to $2.71 billion.
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The company plans to cut about 3,900 jobs, equivalent to 1.5% of IBM’s workforce, CNBC confirmed. Bloomberg previously reported on the cuts. IBM expects a $300 million charge in the first quarter related to spinning off Kyndryl, its managed infrastructure business, and selling its Watson healthcare unit last year.
IBM’s software segment posted $7.29 billion, up nearly 3% and ahead of the consensus of $7.12 billion among analysts polled by StreetAccount.
The company generated $4.77 billion in consulting revenue, up 0.5% and slightly below StreetAccount’s $4.8 billion expectation.
IBM’s infrastructure segment generated $4.48 billion, up nearly 2% and ahead of the StreetAccount consensus of $4.18 billion. Revenue from IBM’s Z Systems line of mainframe computers increased 16% after the Z16 model become generally available last May.
Regarding the guidance, IBM called for currency-neutral revenue growth for 2023 — IBM CFO Jim Kavanaugh said in a conference call that it would be reasonable to expect it to be in the mid-single digits at the low end of its model revenue growth — and around $10.5 billion in free cash flow. In 2021, IBM announced a goal of achieving free cash flow of $35 billion between 2022 and 2024, and in 2022 free cash flow totaled $9.29 billion.
The company is also extending the lifespan of servers and network equipment starting Jan. 1, which will add more than $200 million to pretax profit, Kavanaugh said. Amazon and Microsoft already made similar changes.
During the quarter, IBM unveiled a plan to invest $20 billion in New York’s Hudson Valley over the course of a decade. The company also announced a Next generation quantum computer with 433 qubits and the acquisition by Octo, one of the few consulting firms IBM has acquired since the spin-off Kyndryl in 2021.
IBM outperformed its technology peers in 2022, its worst year for the Nasdaq since 2008. IBM is up 11% over the past year and was one of only two U.S. tech companies valued at $50 billion or more to report earnings. The other was VMware, which agreed to be acquired by Broadcom for $61 billion in May.
Executives will discuss the results with analysts in a conference call starting at 5:00 p.m. ET.
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