TECH IBM reports earnings beat, but misses revenue
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Wednesday, IBM reported better-than-expected earnings, expanding its gross margin.

Consensus revenue estimates were missed.

In a prepared statement, CEO Arvind Krishna referenced AI several times.

In January 2023, IBM Chairman and CEO Arvind Krishna speaks on a panel at the World Economic Forum in Davos, Switzerland.

The company reported second-quarter earnings on Wednesday that exceeded analysts’ estimates. Consensus revenue estimates were missed.

After the report, IBM shares were little changed in extended trading.

The company’s performance was as follows:

  • According to Refinitiv, earnings were $2.18 per share, adjusted, versus $2.01 expected.

  • Refinitiv reports revenue of $15.48 billion, versus $15.58 billion expected.

The company’s net income for the quarter rose 13% to $1.6 billion from $1.4 billion, or $1.72 per share, a year earlier. The adjusted gross margin for IBM was 55.9%, higher than the StreetAccount estimate of 54.7%. The company’s revenue nearly remained the same from the previous year.

A statement from IBM Chief Financial Officer James Kavanaugh attributed the company’s rising gross margin to a more profitable mix of products, including software, the fastest-growing division of the company. During a broader downsizing across the tech sector, IBM announced 3,900 job cuts in January.

In a call with analysts, Kavanaugh said productivity benefits free up spend for reinvestment.

In constant currency, IBM expects revenue growth of between 3% and 5% through the end of the year. In 2023, the company expects to generate about $10.5 billion in free cash flow.

A year ago, IBM’s largest division, its software segment, reported $6.6 billion in sales, up over 7%. Red Hat Enterprise Linux and security software are examples of its software products.

In that division, data and artificial intelligence products grew the fastest, up 10% from a year earlier.

After selling Watson Health 15 months ago, IBM launched WatsonX as a development studio for companies to train, tune, and deploy machine-learning models.

In a prepared statement, CEO Arvind Krishna referenced AI several times.

Krishna told analysts that the company’s focus is on enterprise AI, which will address these opportunities and solve business problems. IT operations, good generation, improved automation, customer service, augmenting HR, predictive maintenance, financial forecasting, broad detection, compliance monitoring, security, sales, risk management, and supply chain are among the use cases.

With sales of $5 billion, IBM’s consulting segment grew more than 4% annually.

Revenue from the company’s infrastructure division, which includes its mainframe sales, declined 14.6% to $3.6 billion. Approximately 30% of the decline was due to lower revenue from Z Systems servers.