This solid start to the year reinforces our confidence in our strategy (and) we continue to see a strong demand environment for both technology and consulting,” said CEO Arvind Krishna.
International Business Machines (IBM) – Get International Business Machines Corporation Report shares moved higher Wednesday after the cloud-computing focused tech giant posted stronger-than-expected first quarter earnings linked to robust demand from global businesses ramping-up IT spending for the coming year.
IBM said revenues for the three months ending in March fell 20% from last year to $14.2 billion, but topped the Street consensus forecast of $13.85 billion, thanks to double-digit gains for its software and consulting segments. Adjusted earnings of $1.40 per share, a 24.4% increase from last year, also beat Street forecasts by around 2 cents.
IBM shed its legacy infrastructure business to focus on cloud computing growth last year, so the comparable revenue gain was around 8% when the infrastructure business is excluded.
Revenues from Red Hat, the cloud computing group that IBM purchased for $34 billion in 2019, were up 21% from last year, thanks in part to an AI partnership with chipmaker Nvidia NVDA. Consulting revenues were up 13.3%.
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Looking ahead, IBM said revenue growth will likely hit the upper end of its “high single digit” growth forecast, even while taking a hit of a “few hundred million” from the suspension of its services in Russia, with free cash flow generation in the region of $10 billion to $10.5 billion.
“This solid start to the year reinforces our confidence in our strategy, and we now see revenue growth for 2022 at the high end of our mid-single-digit model, CEO Arvind Krishna told investors on a conference call late Tuesday. “Technology has become a fundamental source of competitive advantage. It is at the very center of how businesses scale and is no longer perceived primarily as a way to cut costs.”
“Harnessing the power of technologies such as hybrid cloud and AI remains essential as our clients face a number of strategic challenges and opportunities, whether it’s competing for talent, supply chain issues, inflation, cybersecurity or geopolitical instability,” he added. “We continue to see a strong demand environment for both technology and consulting as we help our clients respond to these issues.”
IBM shares were marked 1.9% higher in pre-market trading to indicate an opening bell price of $131.55 each.
“IBM’s revenue results were better than we anticipated, particularly consulting revenues, though we thought margins were disappointing,” said BMO Capital Markets analyst Keith Bachman, who carries a ‘market perform rating with a $152 price target on the stock. “We continue to harbor concerns on the durability of software growth.”
