IBM reports ‘modest’ revenue growth ahead of major split in business

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CEO Arvind Krishna said that software and consulting are the main drivers of growth at the company.

Just weeks before it plans to spin out its infrastructure business, IBM has revealed its third-quarter earnings for 2021.

CEO Arvind Krishna told shareholders there was “modest revenue growth” and progress in the areas of software and consulting, but other areas of the business “fell short of our expectations”.

IBM is set to spin out the IT infrastructure side of its business – to be called Kyndryl – in November and place focus on hybrid cloud platforms and AI.

When the plans were first announced last year, Krishna said the company was “laser-focused on the $1trn hybrid cloud opportunity” and it was the right time to “create two market-leading companies focused on what they do best”.

In the latest quarter, IBM revenue was up by 0.3pc to $17.6bn compared to the same period last year. When excluding Kyndryl’s enterprise infrastructure services, however, revenue was up 2.5pc – showing promise for the new direction IBM is taking.

“With our increased focus and agility to better serve clients, we are confident in achieving our medium-term objectives of mid-single digit revenue growth and strong free cash flow generation,” Krishna said following the earnings announcement.

After a sustained revenue decline last year, IBM reported a revenue bump at the start of 2021 led by its cloud business driving growth. In June, Krishna said IBM was “on track” to deliver full-year revenue growth.

Eyes on cloud and AI

Cloud revenue over the past 12 months increased by 14pc to $27.8bn, while revenue from Red Hat – the cloud company IBM acquired in 2018 for $34bn – increased by 17pc.

“With the separation of Kyndryl early next month, IBM takes the next step in our evolution as a platform-centric hybrid cloud and AI company,” Krishna said.

Speaking to shareholders, he added that IBM’s software revenue growth was led by Red Hat, security, automation and its AI-powered hybrid cloud tools Cloud Paks. On the consulting front, Global Business Services – soon to be renamed IBM Consulting – reached double-digit revenue growth.

“Software and consulting are our two main drivers of growth. And this was certainly true this quarter,” he said.

“We are on the threshold of the future IBM,” added Jim Kavanaugh, IBM’s senior VP and chief financial officer. “We expect to exit Q4 in a position to deliver our mid-term model of mid-single digit revenue growth and cumulative free cash flow of $35bn in 2022 to 2024.”

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