IBM has revealed better-than-expected earnings for the second quarter of the year, despite revenue falling slightly below estimates. The revenue dip was primarily due to the negative impact of unfavorable foreign exchange rates.
Revenue and Earnings
For Q2, IBM reported revenue of $15.475 billion, representing a 0.4% decline from the previous year. Though it fell short of Street consensus estimates by around $110 million, the company’s CEO, Arvind Krishna, highlighted in an interview that approximately $80 million of the revenue miss was attributable to currency fluctuations. Additionally, there was a small shortfall in IBM’s mainframe business.
On an adjusted basis, IBM’s earnings came in at $2.18 per share, surpassing the Street consensus of $2.01. Furthermore, the company’s software business exceeded expectations for the quarter.
Software Segment
IBM’s software revenue for the quarter reached $6.6 billion, reflecting a 7% increase compared to the same period last year and surpassing consensus estimates of $6.4 billion. Notably, this growth was driven by a 10% increase in the “data and AI” segment, an 11% increase at Red Hat (IBM’s open-source software business), and a 9% increase in transaction processing.
Infrastructure Segment
In contrast, IBM’s infrastructure revenue was $3.6 billion, marking a 14.6% decline from the previous year and falling short of the consensus estimate of $3.9 billion. This decrease was primarily attributed to a challenging comparison with the launch of a new generation of mainframes one year ago.
Overall, IBM’s Q2 earnings remained robust despite currency challenges and a drop in infrastructure revenue. The company’s strong performance in the software segment contributed significantly to its positive results.
IBM Reports $5 Billion in Consulting Revenue
IBM has reported its consulting revenue at $5 billion, showing a growth of 4.3%, or 5.9% when adjusted for currency. This matches the expectations of analysts on Wall Street. There were concerns in the lead-up to the results, following a weak outlook for Accenture’s consulting arm a few weeks ago. However, IBM’s results have allayed those worries.
The company reiterated its previous forecast for full-year constant currency revenue growth of 3% to 5%. IBM’s CEO, Arvind Krishna, stated that currency fluctuations should not impede growth this year. The company also restated its forecast for free cash flow to be around $10.5 billion, which is an increase of over $1 billion compared to last year. In the June quarter, free cash flow remained flat at $2.1 billion compared to the same period last year. Additionally, IBM’s non-GAAP operating margin increased by 140 basis points from the previous year and now stands at 55.9%.
IBM recently unveiled its new artificial intelligence software platform called WatsonX. Although the June quarter results do not reflect this launch, Krishna believes that they indicate the company’s approach to providing AI tools to customers is effective.
“We can see that our products have a strong appeal to clients,” says Krishna. He further announces that the company will introduce its first proprietary large language model later this month, with more models scheduled for release in August.
Currently, IBM’s shares have declined approximately 4% since the beginning of the year.
