IBM's Wednesday earnings report came out better than anticipated, and its gross margin increased. Although revenue numbers did not line up with the expectations of analysts, Arvind Krishna's accompanying statement highlighted AI's importance multiple times.
IBM reported second-quarter earnings Wednesday that surpassed analysts' expectations, but revenue fell short of predictions. Shares of IBM were basically unchanged in extended trading following the report. Here's a look at the performance metrics:
Earnings: $2.18, adjusted, compared to the $2.01 per share predicted based on Refinitiv's data.
Revenue: $15.48 billion instead of the expected $15.58 billion calculated by Refinitiv.
Net income for the quarter was $1.6 billion, a 13% increase from the $1.4 billion of the same period last year, or $1.72 per share. IBM's adjusted gross margin of 55.9% was greater than the StreetAccount estimate of 54.7%. Revenue was nearly the same as it was a year ago.
IBM Chief Financial Officer James Kavanaugh stated that the growth in gross margin was attributed to a more rewarding product mix, such as software which was the company's fastest-growing department, and “productivity initiatives.” IBM had passed 3,900 job cuts in January as part of a broader downsizing within the tech industry.
Kavanaugh further elaborated in a talk with analysts that the “productivity benefits free up spend for reinvestment and contribute to margin expansion.” IBM reconfirmed Wednesday that it estimates between 3% and 5% revenue growth by the end of the year if currencies stay the same. The company also foresees about $10.5 billion in free cash flow in 2023.
Software was IBM's largest division and brought in $6.6 billion in sales, a development of more than 7% from a year before. The fastest-growing part of the division was data and artificial intelligence products, which had grown 10% from the preceding year.
In May, IBM had launched WatsonX, a workshop for businesses to "train, tune and deploy" artificial intelligence models, 15 months after the company had sold its Watson Health unit.
CEO Arvind Krishna kept emphasizing the significance of AI several times in a prepared statement. “Our focus is an enterprise AI, designed to address these opportunities and solve business problems,” he said on a call with analysts. “The list of use cases is long and includes 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 amongst others.”
The consulting segment of the company had gone up over 4% year-over-year to $5 billion in sales.
IBM's infrastructure division, which includes mainframe sales, declined 14.6% to $3.6 billion in revenue. The decrease was caused by lower sales of IBM's Z Systems servers, which were down 30%.
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