IBM tops revenue estimates, says it will cut 3,900 jobs

IBM reported quarterly revenue on Wednesday that topped analysts’ estimates, driven by higher-than-expected growth in the company’s software and infrastructure segments. Here’s how the company did:

• Earnings: $3.60 per share, adjusted, vs. $3.60 per share as expected by analysts, according to Refinitiv.
• Revenue: $16.69 billion, vs. $16.4 billion as expected by analysts, according to Refinitiv.

Analysts had expected IBM’s total revenue to decline for the first time in two years, but it ended up being flat, according to a statement. Net income rose 16% to $2.71 billion.

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On Tuesday Microsoft highlighted a slowdown in new business in December, but IBM CEO Arvind Krishna said he was not seeing that pattern.

“I see that our clients do want to do new development,” Krishna said.

The company plans to cut around 3,900 jobs, representing 1.5% of IBM’s workforce, CNBC confirmed. Bloomberg reported earlier on the cuts. IBM said it expects to record a first-quarter charge of $300 million tied the spinoff of Kyndryl, its managed infrastructure business, and the divestiture last year of its Watson health-care unit.

IBM’s software segment posted $7.29 billion, which works out to nearly 3% growth and above the $7.12 billion consensus among analysts polled by StreetAccount.

The company picked up $4.77 billion in revenue from consulting, up 0.5% and slightly lower than the $4.8 billion consensus from StreetAccount.

IBM’s infrastructure segment generated $4.48 billion, up almost 2% and more than the $4.18 billion StreetAccount consensus. Revenue from IBM’s Z Systems line of mainframe computers jumped 16% after the Z16 model became generally available last May.

With respect to guidance, IBM called for 2023 revenue growth in constant currency — Jim Kavanaugh, IBM’s finance chief, said on a conference call that it would be prudent to expect it to be on the low end of its model for mid-single-digit revenue growth — and around $10.5 billion in free cash flow. In 2021, IBM announced a goal of delivering $35 billion in free cash flow between 2022 and 2024, and in 2022 free cash flow totaled $9.29 billion.

The company is also lengthening the useful life of servers and networking equipment, starting Jan. 1, which will boost pre-tax income by over $200 million, Kavanaugh said. Amazon and Microsoft have previously made similar changes.

During the quarter, IBM revealed a plan to invest $20 billion in New York’s Hudson Valley area over the course of a decade. The company also announced a next-generation quantum computer featuring 433-qubits and the acquisition of Octo, one of a handful of consulting companies IBM has absorbed since spinning out Kyndryl in 2021.

IBM outperformed its tech peers in 2022, the worst year for the Nasdaq since 2008. IBM rose 11% last year and was one of only two U.S. tech companies valued at $50 billion or more to notch gains. The other was VMware, which agreed in May to be acquired by Broadcom for $61 billion.

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