IBM Q2 Earnings Miss Expectations... "Focusing on Enterprise AI"

by Kwon Haeyoung

Published 20 Jul.2023 17:00(KST)

Annual Sales Growth Rate Outlook Maintained at 3-5%

IBM reported earnings for the second quarter that fell short of market expectations. The company also announced its plan to focus on the rapidly growing artificial intelligence (AI) sector.

[Image source=Reuters Yonhap News]

On the 19th (local time), IBM announced that its second-quarter revenue was $15.48 billion, similar to the same period last year. This result was below the $15.58 billion forecast by market research firm Refinitiv.

Net income for the second quarter rose 13% year-over-year to $1.6 billion. Adjusted earnings per share were $2.18, falling short of Refinitiv’s estimate of $2.01. The company’s adjusted profit margin was 55.9%, exceeding the market expectation of 54.7%.

Looking at revenue by segment, software (SW) sales increased 7.2% to $6.6 billion. Revenue from Red Hat, the cloud division acquired in 2019, grew by 11%. The fastest-growing segment, data and AI, saw a 10% increase in revenue compared to the same period last year.

However, weakness in the infrastructure segment, which includes mainframe sales, hindered overall revenue growth. Infrastructure revenue declined 14.6% year-over-year to $3.6 billion. This was largely due to a 30% drop in Z System server sales.

Nonetheless, Bloomberg assessed that IBM alleviated concerns about slowing demand by maintaining its annual revenue growth forecast at 3-5%. James Kavanaugh, IBM’s Chief Financial Officer (CFO), stated, "Momentum has been accelerating since the first half," and maintained the previous revenue outlook.

IBM also emphasized the importance of the AI segment, which is driving revenue growth. Arvind Krishna, IBM’s Chief Executive Officer (CEO), said, "We are focusing on enterprise AI designed to seize opportunities and solve business problems."