IBM Chairman and CEO Arvind Krishna participated in a panel session at the World Economic Forum in Davos, Switzerland on January 17, 2023.
Image Source: Stefan Wermuth | Bloomberg | Getty Images
IBM released its second-quarter earnings on Wednesday, surpassing analysts’ estimates with improved gross margin. However, revenue fell short of consensus estimates.
In after-hours trading, IBM shares remained relatively unchanged following the release of the report.
Here is a breakdown of the company’s performance:
- Earnings: $2.18 per share (adjusted), exceeding the expected $2.01 per share, according to Refinitiv.
- Revenue: $15.48 billion, falling short of the expected $15.58 billion, according to Refinitiv.
Net income for the quarter rose 13% to $1.6 billion, or $1.72 per share, compared to $1.4 billion in the previous year. IBM’s adjusted gross margin of 55.9% exceeded the Street Account estimate of 54.7%. The revenue remained relatively stable compared to the previous year.
IBM CFO James Kavanaugh attributed the expansion of the company’s gross margin to a more profitable mix of products, with software being the fastest growing division. He also mentioned “productivity initiatives.” IBM announced 3,900 job cuts in January as part of a broader downsizing across the tech sector.
“The productivity benefits free up spend for reinvestment and contribute to margin expansion,” Kavanaugh explained during a call with analysts.
IBM reiterated its expectation of 3% to 5% revenue growth through the end of the year in constant currency. The company also forecasted approximately $10.5 billion in free cash flow for 2023.
The software segment, which is IBM’s largest division, reported $6.6 billion in sales, reflecting over 7% growth from the previous year. This segment includes products such as the Red Hat Linux operating system and security software.
The data and artificial intelligence products within the software division experienced the highest growth of 10% year-over-year.
In May, IBM introduced WatsonX, a development studio for companies to “train, tune, and deploy” machine-learning models. This came 15 months after the company sold its Watson Health unit.
CEO Arvind Krishna emphasized the significance of AI in a prepared statement.
“Our focus is on enterprise AI, designed to tackle these opportunities and solve business problems,” Krishna stated during a call with analysts. “The list of use cases is extensive and includes IT operations, good generation, improved automation, customer service, augmenting HR, predictive maintenance, financial forecasting, fraud detection, compliance monitoring, security, sales, risk management, and supply chain, among others.”
IBM’s consulting segment reported over 4% growth on an annual basis, generating $5 billion in sales.
The company’s infrastructure division, which includes mainframe sales, experienced a decline of 14.6% in revenue to $3.6 billion. This drop was driven by a decrease in revenue from its Z Systems servers, which were down by 30%.
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