IBM's profit jumps on strong software and consulting business

US technology company earns $14.3 billion in revenue in the three=month period to the end of March

IBM's net profit rose to over $900 million in the January-March period. Reuters

IBM reported a 26 per cent jump in first-quarter net profit, driven by its software and consulting divisions.

The company's net profit rose to $927 million in the three-months to the end of March, from the same period a year earlier, the company said in a regulatory filing on Wednesday.

Revenue increased about 0.4 per cent in the quarter to $14.3 billion from a year earlier, which was in line with analysts' estimates.

The company's shares closed down more than 1 per cent to $126.32 at the end of trading on Wednesday, but gained nearly 2 per cent in after hours trading.

“Our first-quarter results demonstrate that clients continue turning to IBM for our unique combination of an open hybrid cloud platform, enterprise-focused AI [artificial intelligence], and business expertise to unlock productivity and drive efficiency in their operations,” said Arvind Krishna, IBM’s chairman and chief executive.

“This gives us confidence in our current growth expectations for revenue and free cash flow for the year.”

IBM earned nearly half of its revenue, or $7.1 billion from the Americas region, while it earned $2.8 billion from Asia Pacific and $4.3 billion from Europe, and the Middle East and Africa region.

The New York-based company expects revenue growth of 3 per cent to 5 per cent in the 2023 full financial year. It predicts about $10.5 billion in free cash flow, up more than $1 billion yearly, during the period.

IBM’s consulting arm, which included business transformation, technology consulting and application operations, contributed $5 billion in the first quarter, almost 2.8 per cent more than the prior year period.

Its software business added about $5.9 billion in the first quarter, up by about 2.6 per cent year on year.

The infrastructure division earned $3.1 billion in sales, nearly 3.7 per cent down on a yearly basis.

Financing, which includes clients and commercial financing, generated $200 million, up 27.3 per cent annually.

In the first quarter, the company generated net cash from operating activities of $3.8 billion, up $500 million on an annual basis. IBM’s free cash flow stood at $1.3 billion as of March 31.

IBM said it ended the first quarter with $17.6 billion of cash and marketable securities, up $8.8 billion from December last year.

Debt, including IBM financing debt of $10.5 billion, totalled $58.7 billion. It was up by nearly $7.8 billion since the end of 2022.

The company also returned $1.5 billion to shareholders in dividends in the first quarter.

IBM is “well positioned to continue investing for growth and returning value to shareholders through dividends”, said James Kavanaugh, the company’s senior vice president and chief financial officer.

“We remained focused on the fundamentals of our business, increasing productivity and generating operating leverage … as a result, we again expanded our gross profit margin, improved our underlying profit performance and increased our cash generation.”