IBM misses first quarter revenue estimates; cuts growth forecast to 6%-8%

In January, the company forecasted a constant currency revenue growth consistent with its mid-single digit model and about $10.5 billion in consolidated free cash flow, up more than $1 billion yearly, for 2023.

The company’s software and consulting businesses rose 6% and 8.2%, respectively, at constant currency in the first quarter, in line with IBM’s targets. Big Blue also reiterated its full-year free cash flow forecast of $10.5 billion.

IBM Chief Executive Officer Arvind Krishna said clients were prioritizing digital transformation projects that focus on “cost takeout, productivity and quick returns”, mirroring comments by Accenture executives last month.

As a result, IBM cut its full-year consulting revenue growth forecast to 6%-8% from earlier expectations of high single-digit percentage growth.

Job cuts & softening demand

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In January, IBM Corp announced 3,900 layoffs as part of some asset divestments and missed its annual cash target, dampening cheer around beating revenue expectations in the fourth quarter.

Chief financial officer James Kavanaugh had said the company was still “committed to hiring for client-facing research and development”.

The layoffs – related to the spinoff of its Kyndryl business and a part of AI unit Watson Health – will cause a $300 million charge in the January-March period, IBM had said.

In October, IBM flagged softness in new bookings in Western Europe while peer Accenture Plc noted weakness in its consulting business. Cognizant Technology Solutions Corp in November cut its 2022 forecast due to a pullback in contracts.

IBM’s software and consulting business growth slowed down sequentially in Q4 2022, but cloud spending was a bright spot, with deal signings doubling in 2022 for setting up services with partners such as Amazon.com’s AWS and Microsoft’s Azure.

India business
IBM Consulting has a third of its significant headcount based in India, a country that continues to be strategic to the growth plans of the global organisation, senior vice-president John Granger told ET in an exclusive interview on March 16.

He said IBM Consulting is doubling down on the India market as it has seen strong growth over the past two years.

“We have a significant reliance on our teams in India, especially our global innovation centres. India has never been a labour arbitrage play, it has always been a talent play,” said Granger.

IBM Consulting contributed to a third of IBM’s $60 billion revenue in 2022. This segment was rebranded from IBM Global Business Services in 2021 prior to IBM’s split with Kyndryl. The offering competes with consulting solutions from IT services majors like Accenture and TCS for large enterprise deals, according to analysts.

(With agency inputs)