International Business Machines (IBM) shares moved higher Wednesday after the cloud-computing focused tech giant posted stronger-than-expected first quarter earnings linked to robust demand from global businesses ramping-up IT spending for the coming year.
IBM said revenues for the three months ending in March fell 20% from last year to $14.2 billion, but topped the Street consensus forecast of $13.85 billion, thanks to double-digit gains for its software and consulting segments. Adjusted earnings of $1.40 per share, a 24.4% increase from last year, also beat Street forecasts by around 2 cents.
IBM shed its legacy infrastructure business to focus on cloud computing growth last year, so the comparable revenue gain was around 8% when the infrastructure business is excluded.
Revenues from Red Hat, the cloud computing group that IBM purchased for $34 billion in 2019, were up 21% from last year, thanks in part to an AI partnership with chipmaker Nvidia NVDA. Consulting revenues were up 13.3%.
Looking ahead, IBM said revenue growth will likely hit the upper end of its "high single digit" growth forecast, even while taking a hit of a "few hundred million" from the suspension of its services in Russia, with free cash flow generation in the region of $10 billion to $10.5 billion.
"This solid start to the year reinforces our confidence in our strategy, and we now see revenue growth for 2022 at the high end of our mid-single-digit model, CEO Arvind Krishna told investors on a conference call late Tuesday. "Technology has become a fundamental source of competitive advantage. It is at the very center of how businesses scale and is no longer perceived primarily as a way to cut costs."
"Harnessing the power of technologies such as hybrid cloud and AI remains essential as our clients face a number of strategic challenges and opportunities, whether it's competing for talent, supply chain issues, inflation, cybersecurity or geopolitical instability," he added. "We continue to see a strong demand environment for both technology and consulting as we help our clients respond to these issues."
IBM shares were marked 7% higher in late afternoon trading Wednesday, compared to a 1% decline for the Nasdaq Composite benchmark, to change hands at $138.20 each, the highest since February 4.
"IBM’s revenue results were better than we anticipated, particularly consulting revenues, though we thought margins were disappointing," said BMO Capital Markets analyst Keith Bachman, who carries a 'market perform rating with a $152 price target on the stock. "We continue to harbor concerns on the durability of software growth."
