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IBM reports earnings beat, but misses on revenue

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IBM Chairman and CEO Arvind Krishna appears on a panel session at the World Economic Forum in Davos, Switzerland, on Jan. 17, 2023.
Stefan Wermuth | Bloomberg | Getty Images

IBM reported second-quarter earnings on Wednesday that topped analysts’ estimates as the company expanded its gross margin. Revenue missed consensus estimates.

Shares of IBM were little changed in extended trading after the report.

Here’s how the company did:

  • Earnings: $2.18, adjusted, versus $2.01 per share expected, according to Refinitiv.
  • Revenue: $15.48 billion, versus $15.58 billion expected, according to Refinitiv.

Net income for the quarter rose 13% to $1.6 billion from $1.4 billion, or $1.72 per share, a year earlier. IBM’s adjusted gross margin of 55.9% was higher than the Street Account estimate of 54.7%. Revenue was virtually flat from a year earlier.

IBM CFO James Kavanaugh, in a statement, attributed the company’s expanding gross margin to a more profitable mix of products — software was the company’s fastest growing division — as well as “productivity initiatives.” IBM announced 3,900 job cuts in January as part of a broader downsizing across the tech sector.

IBM reiterated on Wednesday that it expects between 3% and 5% revenue growth through the end of the year in constant currency. The company forecasts about $10.5 billion in free cash flow in 2023.

IBM’s largest division, its software segment, reported $6.6 billion in sales, which was up over 7% from a year ago. Software includes products such as its Red Hat Linux operating system and security software.

The part of that division that grew the fastest was data and artificial intelligence products, which were up 10% from a year earlier.

In May, IBM billed WatsonX as a development studio for companies to “train, tune and deploy” machine-learning models, 15 months after the company sold its Watson Health unit.

CEO Arvind Krishna referenced the significance of AI several times in a prepared statement.

“We continue to respond to the needs of our clients who seek trusted, enterprise AI solutions, and we are particularly excited about the response to the recently launched WatsonX AI platform,” Krishna said.

IBM’s consulting segment grew over 4% on an annual basis to $5 billion in sales.

The company’s infrastructure division, which includes its mainframe sales, declined 14.6% to $3.6 billion in revenue. The drop was driven by lower revenue from its Z Systems servers, which were down 30%.

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