IBM Q2 2023 Earnings Report

IBM Chairman and CEO Arvind Krishna speaks at a panel session at the World Economic Forum in Davos, Switzerland on January 17, 2023.

Stefan Wermuth | Bloomberg | Getty Images

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

IBM shares were little changed in after-hours trading after the report.

Here’s how the company did it:

  • income: $2.18 per share, compared with expectations of $2.01 per share, according to Refinitiv.
  • income: $15.48 billion versus expectations of $15.58 billion, 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%. The profit has practically not changed from last year.

In a statement, IBM CFO James Cavanagh attributed the company’s increase in gross margins to a more profitable product mix — software was the company’s fastest-growing division — as well as “productivity initiatives.” IBM announced 3,900 job cuts in January as part of broader cuts across the technology sector.

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

Intel’s largest division, its software segment, reported sales of $6.6 billion, up more than 7% from a year ago. Software includes products such as the Red Hat Linux operating system and security software.

The fastest-growing part of this division is data and artificial intelligence products, which grew 10% year-over-year.

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

CEO Arvind Krishna mentioned the importance of artificial intelligence several times in a prepared statement.

“We continue to respond to the needs of our customers looking for robust enterprise AI solutions, and we are particularly excited by the response to the recently launched WatsonX AI platform,” said Krishna.

IBM’s consulting segment grew nearly 6% year-over-year to $5 billion in sales.

Revenue from the company’s infrastructure division, which includes mainframe sales, fell 14.6% to $3.6 billion. The decline was driven by lower revenue from Z Systems servers, which fell 30%.

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