IBM
posted better-than-expected earnings for the June quarter, with revenue coming in slightly below expectations—mostly because of a higher-than-expected hit from unfavorable foreign exchange rates.
For the quarter, IBM (ticker: IBM) reported revenue of $15.475 billion, down 0.4% from a year earlier, and about $110 million shy of Street consensus estimates. IBM CEO Arvind Krishna noted in an interview with Barron’s that about $80 million of the top-line miss was related to currency, with a modest miss in the company’s mainframe business.
Earnings on an adjusted basis were $2.18 a share, well ahead of the Street consensus at $2.01, and the company’s software business topped expectations for the quarter.
Software revenue was $6.6 billion, up 7% from the year-ago period, above consensus at $6.4 billion. The result was driven by 10% growth in IBM’s “data and AI” segment; 11% growth at Red Hat, IBM’s open-source software business; and 9% growth in transaction processing.
Infrastructure revenue was $3.6 billion, down 14.6% year over year, and below the consensus estimate of $3.9 billion. The decline was largely because of a tough comparison with the launch of a new generation of mainframes a year ago.
Consulting revenue came in at $5 billion, up 4.3%, or 5.9% adjusted for currency, matching Street estimates. There was some worry among analysts about the consulting business heading into the results, following a weak outlook from Accenture a few weeks ago on its own consulting arm.
IBM repeated its previous forecast for full-year constant currency revenue growth of 3% to 5%. Krishna said currency shouldn’t be a factor in growth for the year. The company also repeated its forecast for free cash flow of about $10.5 billion, up more than $1 billion for the year. In the June quarter, free cash flow was $2.1 billion, flat versus a year ago. Non-GAAP operating margin was 55.9%, up 140 basis points from a year ago.
IBM this month launched WatsonX, a new artificial intelligence software platform.
Krishna said the June quarter results don’t reflect the new launch, but do suggest that the company’s approach to providing AI tools to customers is on target.
“It tells you that our products are appealing to clients,” he says. Krishna notes that the company will launch its first proprietary large language model later this month, with more models to follow in August.
IBM shares are off about 4% for the year to date.
Write to Eric J. Savitz at [email protected]
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