IBM posts better-than-expected sales, affirms cash flow view
INTERNATIONAL Business Machines (IBM) reported better-than-expected sales and affirmed its full-year outlook, suggesting the company’s focus on software and hybrid cloud services is paying off.
Third-quarter sales gained 4.6 per cent to US$14.8 billion, the Armonk, New York-based company said on Wednesday (Oct 25). Analysts, on average, estimated US$14.7 billion. IBM also reiterated that annual sales will grow 3 per cent to 5 per cent and free cash flow will be about US$10.5 billion.
As part of its transformation, IBM has divested its managed infrastructure, weather and health businesses in recent years. In August, the company completed the acquisition of software management company Apptio for US$4.6 billion. Ahead of the results, analysts raised concerns that an unpredictable economy would hurt IBM’s consulting unit. The division reported US$5 billion in sales in the quarter, slightly short of the US$5.1 billion expected by analysts.
Much of that miss is attributable to a strengthening US dollar since many of IBM’s consulting customers are overseas, chief financial officer Jim Kavanaugh said. Consulting customer behaviour has not changed much since the start of the year, he added.
Sales in software, a crucial business unit for a revamped IBM, increased 7.8 per cent to US$6.3 billion. Acquired unit Red Hat gained 9 per cent, another comparatively slow quarter for the business that once regularly jumped above 20 per cent each quarter. Profit, excluding some items, was US$2.20 per share in the period ended Sep 30, compared with an average estimate of US$2.12.
Slowdowns in consulting and Red Hat indicate pressure on discretionary corporate tech spending, wrote Bloomberg Intelligence’s Anurag Rana. “We believe the Consulting segment’s challenges will accelerate in Q4 amid worsening geopolitical concerns.”
In May, IBM announced a platform for large companies to train and use artificial intelligence (AI) models, leaning on its Watson legacy to try to stand out in the crowded field for AI tools. The company has booked a few hundred million US dollars worth of generative AI business, which is split between consulting and software, Kavanaugh said.
Currency movements affected IBM’s results by about US$250 million, including in the consulting business, he said. Exchange rates may cost full-year revenue growth of about 1 per cent, the company said.
The shares gained about 1.5 per cent in extended trading after closing at US$137.08 in New York. IBM has missed out on the rally in tech stocks, with the stock slipping 2.7 per cent this year. BLOOMBERG
Share with us your feedback on BT's products and services
