IBM’s First-Quarter Results Mixed, But Outlook Appears Cautiously Optimistic

While IBM first-quarter revenues came in slightly lower than expected, the company delivered single-digit to flat sales growth among its key segments and posted a higher-than-anticipated profit.

IBM, which also issued a cautiously optimistic outlook for the latter part of this year, reported on Wednesday Q1 2023 revenues of $14.25 billion, below expectations of $14.35 billion.

Consulting revenues of $4.96 billion were 3% higher than the first quarter of last year, though they were short of the $5.01 billion analysts had expected. However, IBM’s software revenues of $5.92 billion, also up 3% year-over-year, beat expectations of $5.83 billion.

IBM’s Arvind Krishna

“Our first quarter results demonstrate that clients continue to turn to IBM to help them address today’s business needs while positioning them for the future,” IBM chairman and CEO Arvind Krishna told investors during the company’s earnings call. “More recently, clients are prioritizing digital transformation projects that focus on cost takeout, productivity and quick returns.”

Krishna acknowledged that IBM is experiencing a deceleration in its consulting from what he called robust growth levels. Krishna said that was especially the case in the U.S. “Globally, our clients continue to see technology as a fundamental source of competitive advantage,” he said.

Red Hat Pays Off

IBM’s Jim Kavanaugh

Krishna and CFO Jim Kavanaugh attributed a key component of IBM’s strong software growth to Red Hat, particularly with demand for its OpenShift hybrid cloud platform and, increasingly its Ansible automation platform. “Both offerings also continued to take market share this quarter,” Kavanaugh said.

Red Hat’s revenues grew 11% year-over-year, with OpenShift growing over 40% with $1 billion in annual recurring revenues (ARR) Kavanagh emphasized. “And our Ansible portfolio is scaling nicely and taking share,” he said. “We have a strong renewal available base that will start kicking in in the second half.”

Four years after IBM completed its $34 billion acquisition of Red Hat, Kavanaugh said the deal has paid off. “We have quadrupled the Red Hat revenue from pre-acquisition in around three and a half years,” he said. “And around the multiplier effect, we’ve accelerated our software portfolio, and we’ve accelerated our consulting portfolio to a high mid to high single digit growth business overall. So, we’re very pleased overall.”

See other takeaways from IBM’s first quarter report in the slideshow above.