IBM’s First-Quarter Results Mixed, But Outlook Appears Cautiously Optimistic
IBM execs say Red Hat revenues have quadrupled since the acquisition.
April 21, 2023
![Businessman crossing fingers Businessman crossing fingers](https://eu-images.contentstack.com/v3/assets/blt10e444bce2d36aa8/bltbcc63a02ce24b006/6523feff3bad6c0fae53dea7/Businessman-crossing-fingers-in-hope.jpg?width=700&auto=webp&quality=80&disable=upscale)
Shutterstock
Among the customer wins that CEO Arvind Krishna called out, IBM is collaborating with Wasabi Technologies to analyze important data sources to help the team improve its operations.
Krishna noted that customers using AI for B2B operations require tools that provide accurate results and trusted data for governance. For example, he said IBM is working with Citigroup to enhance its internal audit and compliance processes using AI. “Early client engagements experience a 70% faster time to value,” he said. “That is why we are seeing a lot more interest from businesses and using AI to boost productivity and reduce costs. Productivity gains will come from enterprises turning their workflows into simpler automated processes with AI.”
Krishna noted some of the latest alliances that IBM announced. Among them was IBM’s expanded partnership with Adobe to help marketing and creative organizations simplify content production. IBM and EY’s sustainability consulting practice have partnered to help mutual clients operationalize their decarbonization plans. IBM also expanded its partnerships with Juniper Networks and Nokia to implement IBM’s network intelligence and automation offerings.
CFO Kavanaugh revealed IBM’s effort to improve G&A efficiencies by replacing its data center infrastructure with a hybrid cloud environment running Red Hat OpenShift, which he claims has reduced the average application cost by 90%.
“By standardizing global processes and applying AIOps, we are reducing our application portfolio by more than 35%,” he said. “We’ve automated over 24 million transactions with RPA avoiding hundreds of thousands of manual tasks and eliminating the risk of human error.”
Kavanagh added that IBM is deploying AI at scale to reengineer its business processes. “We’re doing that in areas like HR and talent, finance, and end-to-end processes like quote-to-cash and source-to-pay,” he said. For example, in HR, IBM handles 94% of inquiries with its HR digital assistant, which completes many HR tasks by up to 75%.
CFO Kavanaugh revealed IBM’s effort to improve G&A efficiencies by replacing its data center infrastructure with a hybrid cloud environment running Red Hat OpenShift, which he claims has reduced the average application cost by 90%.
“By standardizing global processes and applying AIOps, we are reducing our application portfolio by more than 35%,” he said. “We’ve automated over 24 million transactions with RPA avoiding hundreds of thousands of manual tasks and eliminating the risk of human error.”
Kavanagh added that IBM is deploying AI at scale to reengineer its business processes. “We’re doing that in areas like HR and talent, finance, and end-to-end processes like quote-to-cash and source-to-pay,” he said. For example, in HR, IBM handles 94% of inquiries with its HR digital assistant, which completes many HR tasks by up to 75%.
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.
Want to contact the author directly about this story? Have ideas for a follow-up article? Email Jeffrey Schwartz or connect with him on LinkedIn. |
About the Author(s)
You May Also Like