IBM is cutting 3,900 jobs, about 1.5 per cent of its global workforce, as it reported a 16 per cent annual jump in fourth-quarter net profit driven by robust performance in the company's software and infrastructure units.
Net income during the October-December period rose to more than $2.7 billion, from the year earlier, the company said on Wednesday. On a quarterly basis, it improved from a net loss of $3.1 billion in the July-September period.
Fourth quarter total revenue remained flat at more than $16.7 billion, exceeding analysts’ estimates of $16.4 billion.
During a conference call, IBM also announced layoffs for which it will register a $300 million charge in the first quarter of this year.
The layoffs are related to the spin-off of IBM's Kyndryl business and a part of AI unit Watson Health.
“Unlike many others over the last two to two and a half years that were hiring in tens and thousands of people … we are leveraging digitisation, AI automation, that drives efficiency, but we are committed to hiring for client-facing research and development,” IBM's chief financial officer James Kavanaugh told Reuters.
After a frenzy of hiring during the pandemic as a result of the pivot to digitalisation, many companies in the technology sector including Spotify, Meta, Amazon, Microsoft and Google's parent Alphabet have cut thousands of jobs. Central banks have increased interest rates to curb inflation but fears of a recession in the US are growing as a result of monetary tightening.
IBM shares fell about 2 per cent in after-hours trading on Wednesday to $137.98. In the regular trading session, the company’s shares closed down 0.52 per cent, to $140.76 a share.
Looking ahead to 2023, we expect full-year revenue growth consistent with our mid-single digit model
Arvind Krishna,
IBM’s chairman and chief executive
IBM’s infrastructure division earned $4.5 billion in sales, nearly 1.6 per cent up on a yearly basis.
The consulting arm, which included business transformation, technology consulting and application operations, contributed $4.8 billion, almost 0.5 per cent more than the prior year period.
IBM’s software business added about $7.3 billion in the fourth quarter. It was up by about 2.8 per cent year on year.
Financing, which includes clients and commercial financing, generated $200 million, down 0.4 per cent annually.
“Our solid fourth-quarter performance capped a year in which we grew revenue above our mid-single digit model,” Arvind Krishna, IBM’s chairman and chief executive, said.
“Clients in all geographies increasingly embraced our hybrid cloud and AI [artificial intelligence] solutions as technology remains a differentiating force in today’s business environment,” Mr Krishna said.
Following the earnings announcement, the company’s shares dropped 2.14 per cent to trade at $137.75 a share in after-hours trading.
The company’s full 2022 financial year’s net profit dropped 71.4 per cent to over $1.6 billion, while sales increased nearly 5.5 per cent to more than $60.5 billion.
On a consolidated basis, net cash from operating activities reached $10.4 billion and free cash flow stood at $9.3 billion in the last full financial year.
“Looking ahead to 2023, we expect full-year revenue growth consistent with our mid-single digit model,” Mr Krishna said.
On a consolidated basis, in the fourth quarter, the company generated net cash of $4 billion from operating activities, up $1.4 billion compared with the same period in 2021. Its free cash flow was $5.2 billion, up $1.9 billion. The company also returned $1.5 billion to shareholders in dividends in the fourth quarter.
“IBM’s revenue growth and operating profit in 2022 demonstrate the strength and multiplier effect of our platform-centric approach to hybrid cloud and AI,” said Mr Kavanaugh.
“Our client-focused portfolio and strong recurring revenue stream position IBM well for continued growth, solid cash generation and returning value to shareholders through dividends.”
IBM said it ended the fourth quarter with $8.8 billion of cash on hand (which includes marketable securities), up $1.3 billion from the end of 2021.
Debt, including IBM debt financing of $12.9 billion, totalled $50.9 billion. It was down by nearly $800 million since the end of 2021.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Company profile
Date started: December 24, 2018
Founders: Omer Gurel, chief executive and co-founder and Edebali Sener, co-founder and chief technology officer
Based: Dubai Media City
Number of employees: 42 (34 in Dubai and a tech team of eight in Ankara, Turkey)
Sector: ConsumerTech and FinTech
Cashflow: Almost $1 million a year
Funding: Series A funding of $2.5m with Series B plans for May 2020
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
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Financial considerations before buying a property
Buyers should try to pay as much in cash as possible for a property, limiting the mortgage value to as little as they can afford. This means they not only pay less in interest but their monthly costs are also reduced. Ideally, the monthly mortgage payment should not exceed 20 per cent of the purchaser’s total household income, says Carol Glynn, founder of Conscious Finance Coaching.
“If it’s a rental property, plan for the property to have periods when it does not have a tenant. Ensure you have enough cash set aside to pay the mortgage and other costs during these periods, ideally at least six months,” she says.
Also, shop around for the best mortgage interest rate. Understand the terms and conditions, especially what happens after any introductory periods, Ms Glynn adds.
Using a good mortgage broker is worth the investment to obtain the best rate available for a buyer’s needs and circumstances. A good mortgage broker will help the buyer understand the terms and conditions of the mortgage and make the purchasing process efficient and easier.
What are NFTs?
Are non-fungible tokens a currency, asset, or a licensing instrument? Arnab Das, global market strategist EMEA at Invesco, says they are mix of all of three.
You can buy, hold and use NFTs just like US dollars and Bitcoins. “They can appreciate in value and even produce cash flows.”
However, while money is fungible, NFTs are not. “One Bitcoin, dollar, euro or dirham is largely indistinguishable from the next. Nothing ties a dollar bill to a particular owner, for example. Nor does it tie you to to any goods, services or assets you bought with that currency. In contrast, NFTs confer specific ownership,” Mr Das says.
This makes NFTs closer to a piece of intellectual property such as a work of art or licence, as you can claim royalties or profit by exchanging it at a higher value later, Mr Das says. “They could provide a sustainable income stream.”
This income will depend on future demand and use, which makes NFTs difficult to value. “However, there is a credible use case for many forms of intellectual property, notably art, songs, videos,” Mr Das says.
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Director Hansal Mehta
Stars: Kangana Ranaut, Soham Shah, Esha Tiwari Pandey
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