IBM Chairman and CEO Arvind Krishna attends a panel discussion at the World Economic Forum in Davos, Switzerland, January 17, 2023.
Stefan Wermuth | Bloomberg | Getty Images
IBM released stronger-than-expected first-quarter results on Wednesday, even as the technology and consulting firm reported disappointing earnings.
Here’s how the company did it:
- Earnings: $1.36 per share, adjusted, versus $1.26 per share as expected by analysts, according to Refinitiv.
- Income: $14.25 billion, versus $14.35 billion as forecast by analysts, according to Refinitiv.
IBM’s revenue rose 0.4% from a year earlier in the quarter, according to a statement. Net income rose 26% to $927 million, or $1.02 per share for continuing operations.
Profits grew faster than revenue, as IBM’s total expenses and other income fell 4% to $6.45 billion, with cuts in research, development and engineering.
Net income decreased by approximately $200 million due to various changes in the company’s portfolio. IBM last year said it was selling healthcare data and analytics assets to Francisco Partners.
Revenue from the company’s software segment rose about 3% to $5.92 billion, beating the consensus of $5.83 billion among analysts polled by StreetAccount.
IBM’s consulting unit reported revenue of $4.96 billion, up nearly 3% but below the StreetAccount consensus of $5.01 billion.
“We are seeing some deceleration in consulting from previous robust growth levels, particularly in the US,” CEO Arvind Krishna said on a conference call with analysts.
Sales in the infrastructure segment, which includes IBM mainframes, fell 4% to $3.1 billion, lagging StreetAccount consensus of $3.19 billion. Declines occurred in the distributed infrastructure and infrastructure support categories, even as Z mainframe computer sales rose 7% after the May release of the Z16 model.
Gross margins for the software, consulting and infrastructure divisions all widened year-over-year.
In terms of direction, IBM called for full-year revenue growth of 3% to 5% in constant currency. Chief Financial Officer Jim Kavanaugh said three months ago that, “as we enter this year, I think it’s prudent to expect the bottom of the mid-digit model.” IBM maintained its forecast of $10.5 billion in free cash flow in 2023.
During the quarter, IBM said its technology powered artificial intelligence-powered commentary on videos in the Masters Tournament golf app. In recent months, following the launch of OpenAI startup’s ChatGPT chatbot, several tech companies have sought to showcase their generative AI capabilities for creating images, text and video.
“AI techniques such as base models, large language models, and generative AI give companies the ability to build 100 AI models from a single dataset,” Krishna said. “First customer engagements enjoy a 70% faster time to value. That’s why we’re seeing much more interest from businesses in using AI to increase productivity and reduce costs.” He said IBM was working with Citi to use AI for auditing and compliance purposes.
Shares rose 4% in extended trading. Prior to the move, IBM stock had fallen about 11% this year, underperforming the S&P 500 index, which rose 8% over the same period.
This is breaking news. Please check for updates.
SHOW: Tech is a deflationary response to today’s macro struggles, says IBM CEO Arvind Krishna