International Business Machines Corp. maintained its full-year forecast of 3% to 5% sales growth, overcoming investor anxiety about weakening demand for internet technology.
The company also affirmed its previous guidance for free cash flow of $10.5 billion in 2023.
Chief Financial Officer James Kavanaugh said he sees “accelerating momentum coming out of the first half,” which gave the company confidence in the revenue outlook.
In the second quarter, IBM reported sales of $15.5 billion, little changed from a year earlier and slightly below analysts’ average estimate. Profit, excluding some items, was $2.18 a share. Analysts, on average, projected $2 a share, according to data compiled by Bloomberg.
Chief Executive Officer Arvind Krishna is reorienting the longtime information technology company around software and services. Software sales increased 7.2% to $6.6 billion in the quarter. Revenue from the Red Hat unit jumped 11%, an acceleration from the previous period, when it gained 8%. Kavanaugh said IBM is raising its software growth guidance for the full year to about 6% from 5%.
In the lead-up to Wednesday’s results, analysts voiced concerns that discretionary consulting projects were being delayed due to an uncertain economy. Consulting revenue gained 4.3% to $5 billion in the period ended June 30, the Armonk, New York-based company said in a statement, in line with estimates. Kavanaugh said the company’s pipeline of consulting business is strong, though discretionary projects continue to be delayed.
Still, a consulting growth slowdown compared with the first quarter confirms “that enterprise-IT spending remains under pressure,” wrote Bloomberg Intelligence’s Anurag Rana in a note after the results. “This is likely to carry at least through the end of the year.”
IBM’s overall revenue miss in the quarter largely came from its infrastructure segment, which includes mainframe computers. The unit reported $3.6 billion in revenue, while analysts expected $3.88 billion. In the full year, infrastructure revenue will decline, and drag down IBM’s total sales growth by about 1 percentage point, Kavanaugh said.
The shares fell less than 1% in extended trading after closing at $135.48 in New York. IBM thus far has missed out on the artificial-intelligence fueled rally enjoyed by many big tech names, with the stock declining 3.8% this year. Big Blue is rolling out its own AI solution, dubbed watsonx. Krishna said AI may produce revenue on a similar schedule as the company’s hybrid cloud business, which contributes $2 billion in annual consulting run rate.
IBM last month announced a $4.6 billion acquisition of Apptio, an IT budget management platform, the latest step in Krishna’s plan to reshape the company. Kavanaugh said the deal is expected to close later this year.
(Updates with executive comments beginning in the sixth paragraph.)
