Orders for AI and z16 mainframes helped IBM increase revenue and profit

IBM reported financial results for the second quarter of 2024, ending June 30. The company’s revenue for the period rose 1.9% to $15.77 billion from $15.48 billion in the second quarter of 2023, beating the consensus estimate of $15.62 billion among analysts surveyed by LSEG. Net income (GAAP) was $1 .83 billion or $1.96 per share, which is higher than $1.58 billion or $1.72 per share a year earlier. Adjusted net income (Non-GAAP) of $2.43 per share was well above analysts’ consensus estimate of $2.20.

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IBM said AI played a central role in overall revenue growth. CEO Arvind Krishna noted that the company’s AI order book has exceeded $2 billion, helped by the launch of its Watsonx development platform a year ago.

IBM’s core business units performed well despite geopolitical uncertainty in several regions of the world. The company reported software division revenue growth of 7.1% year-over-year to $6.74 billion, beating the $6.49 billion consensus of analysts surveyed by StreetAccount. Red Hat posted 7% growth in the quarter. , which is relatively low for the company’s acquired software business, which was once consistently growing at more than 20% per quarter. However, Krishna said orders for Red Hat rose in the quarter, a promising sign for the second half. In turn, CFO Jim Kavanaugh told investors that IBM’s Red Hat business is “still growing well,” with orders growing 20% ​​year over year, and OpenShift orders growing twice as fast.

Revenue growth in the automation division was 15%, while revenue in the data processing and AI division fell by 3%. IBM’s consulting unit generated revenue of $5.18 billion, down 0.9% year-on-year and slightly below Wall Street’s forecast of $5.23 billion. Krishna attributed the weak growth to “factors such as interest rates and inflation, influencing decision time and discretionary spending”—issues that have been present all year.

In turn, the infrastructure division generated $3.65 billion in revenue, up 0.7% from the same period in 2023 and above the Wall Street consensus of $3.51 billion.

IBM CFO Jim Kavanaugh noted good sales of the current generation z16 mainframes, released in 2022. “We are more than two years into the z16 cycle and revenue continues to outperform previous cycles,” DatacenterDynamics quotes Kavanaugh as saying. “IBM Z remains a resilient platform for mission-critical workloads, driving both hardware and associated software, storage and service adoption,” he added.

The company’s revenue from distributed infrastructure grew by 3%. “Growth was driven by demand for data-intensive workloads on Power10, led by SAP HANA. Storage saw growth again this quarter, including growth in high-performance storage systems associated with the z16 cycle and solutions designed to protect, manage and access data to scale generative AI,” Cavanaugh said.

IBM also said it still expects 2024 revenue growth to be between 4% and 6%, while free cash flow should top $12 billion.

Among the significant events in the past quarter, it should be noted that IBM entered into an agreement to purchase HashiCorp, a developer of open tools for managing cloud infrastructure, for $6.4 billion. Although the US Federal Trade Commission (FTC) has launched an antitrust review of the deal, which may delay its completion, Krishna told analysts the deal would close in the second half of the year.

IBM also announced a partnership with Palo Alto Networks Inc., which will acquire QRadar Software as a Service (SaaS) resources and become IBM’s preferred cybersecurity partner for network, cloud and security operations.

IBM shares are reportedly up 14% year to date, matching the S&P 500’s gains.