IBM’s net profit dips 2.6% but revenue surges on strong cloud business

Company's share price gained 1.49% at the close of trading on Tuesday giving it a market value of $125bn

IBM said it is focused on making new acquisitions to strengthen its product portfolio. AP

International Business Machines (IBM) reported a 2.6 per cent dip in second quarter net profit despite posting an almost 3.4 per cent jump in revenue on the back of strong growth in its cloud and consulting businesses.

Net profit declined to $1.3 billion, nearly $36 million less than the same period a year ago. Revenue during the three months to June 30 rose to $18.7bn, exceeding analysts’ expectations of $18.29bn. This was the company's fastest sales growth in three years. Sales grew only 0.9 per cent in the previous quarter.

“Across every industry, enterprises are using technology to redesign business processes, whether it's automation in manufacturing, telemedicine in health care or omnichannel in retail,” said Arvind Krishna, IBM’s chairman and chief executive.

“The technology and services we provide to our clients enable their business growth and productivity increases … at the same time, the overall spend environment continues to improve. With the economy reopening in many parts of the world, many markets and industries are getting back on track,” Mr Krishna added.

The New York-headquartered company expects its adjusted free cash flow to hover in the range of $11bn to $12bn this financial year. IBM's share price gained 1.49 per cent at the close of trading on Tuesday to $139.97 giving it a market value of $125 billion.

The company’s cloud and cognitive software business added $6.1bn in revenue, nearly 6 per cent more than the same period last year. Its global business services consulting arm contributed $4.3bn, soaring about 11.5 per cent annually.

Systems revenue, including hardware, was $1.7bn - almost 7.3 per cent down on a yearly basis.

In the April-June period, IBM generated net cash from operating activities of $2.6bn. It also returned $1.5bn to shareholders in dividends.

Its free cash flow was $1bn, which included $0.6bn of cash impacts from the company’s structural actions initiated in the fourth quarter of last year and the transaction costs associated with the separation of Kyndryl - a spin off company from the IBM’s IT infrastructure services. IBM’s adjusted free cash flow, excluding these cash impacts, was $1.6bn.

“We expanded operating margins and grew profit dollars in the quarter, providing a key contribution to our cash performance," said James Kavanaugh, IBM’s senior vice president and chief financial officer.

"In the first half of the year, we increased adjusted free cash flow, invested in strategic acquisitions to strengthen our hybrid cloud and AI [artificial intelligence] capabilities,” he added.

IBM said it is increasing its research spending in areas like quantum computing, machine learning, cloud computing and AI.

“Quantum is an area of incredible promise, slated to unlock hundreds of billions of dollars of value for our clients by the end of the decade,” Mr Krishna said.