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IBM Posts Sales That Top Estimates on Hybrid-Cloud Momentum

IBM Posts Sales That Top Estimates on Hybrid-Cloud Momentum

International Business Machines Corp. reported sales that topped analysts’ estimates on strong demand for its hybrid-cloud offerings, signaling continued momentum for its transition to a business fueled by cloud-based software and consulting.

First-quarter revenue rose 7.7% to $14.2 billion, compared with analysts’ average projection of $13.8 billion, according to data compiled by Bloomberg. The sales results and comparison exclude much of IBM’s legacy infrastructure services unit, which was spun off in November into a new company called Kyndryl.

Chief Executive Officer Arvind Krishna is trying to spur revenue growth by steering IBM, which traditionally relied on infrastructure and information-technology services, into the fast-growing cloud-computing market. Last quarter, the company posted its biggest sales increase in a decade.

“Demand for hybrid cloud and AI drove growth in both Software and Consulting,” Krishna said Tuesday in a statement. “Today we’re a more focused business and our results reflect the execution of our strategy.”

The shares gained about 1.5% in extended trading after closing at $129.15 in New York. The stock has declined 3.4% this year.

Still, IBM faces a crowded field of cloud rivals, even as companies shift more of their operations to the internet. By 2025, for example, 51% of spending on information technology will be directed to the public cloud, up from 41% this year, according to research firm Gartner Inc. Krishna wants IBM to distinguish itself by targeting a hybrid model, which helps clients store and analyze data across on-premises infrastructure, private cloud services and servers run by major public providers such as Amazon.com Inc. and Microsoft Corp.

Hybrid-cloud sales increased 14% to $5 billion, led by an 18% increase for Red Hat, in the period ended March 31, the Armonk, New York-based company said in the statement. Software unit revenue jumped 12% to $5.77 billion and consulting sales gained 13% to $4.83 billion. Results from both units beat analysts’ average projections.

Sales in IBM’s infrastructure unit declined 2.3% to $3.22 billion. The company remains one of the biggest makers of mainframe computers, which have long-served as a foundation of a business’s most important applications, and earlier this month introduced its new z16 mainframe model. But even here IBM pitches the equipment as fitting into a hybrid-cloud environment.  

Profit, excluding some items, was $1.40 a share in the quarter, compared with the average estimate of $1.41 a share. Gross margin was 52.9%, falling short of the average estimate of 54.4%.

IBM said annual revenue growth would be at the “high-end of the mid-single digit range.” In January, the company projected 2022 sales would increase in the mid-single digits.

©2022 Bloomberg L.P.