IBM beats revenue estimates but AI concerns send shares tumbling 6% in extended trading

IBM Posts In-Line Software Sales That Fail to Shake AI Concerns

International Business Machines Corp. posted quarterly sales in its software unit that were in line with estimates, failing to shake investor concerns about AI disruption to its business. Software revenue increased 11% to $7.05 billion in the period ended March 31, the company said Wednesday in a statementBloomberg Terminal. Total revenue increased 9% to $15.9 billion compared with analysts' average estimate of $15.7 billion. Big Blue has refashioned itself into a high-growth software through major acquisitions of Red Hat, HashiCorp and Confluent. The company's new focus has made it a target for investors concerned that artificial intelligence tools will replace many current software products. In February, IBM saw its steepest selloff in decades after AI startup Anthropic PBC unveiled a tool it said could help modernize a dated programming language that runs on IBM mainframes. Investors were looking for better results from the software unit, Brent Thill, an analyst at Jefferies, said in an interview on Bloomberg Television. Wall Street is likely to ask whether customers are delaying purchases with IBM while they test out tools from AI firms, he added. The shares declined about 6% in extended trading after closing at $251.86 in New York. The stock has slipped 15% this year. IBM, like most software providers, has tried to integrate AI into its products and touted its ability to provide customers with the latest technology. The company expects 2 percentage points of growth for its software unit tied to generative AI work this year, Chief Financial Officer Jim Kavanaugh said in an interview. AI-related work increases demand for IBM's infrastructure software, which lets clients to work with leading AI models, he added. IBM's infrastructure business, which includes mainframe computers, generated sales that rose 15% to $3.33 billion, out-performing analysts' estimates. Consulting unit revenue increased 4% to $5.27 billion, the highest growth rate for the struggling business since 2023. The company maintained an earlier forecast for revenue to grow more than 5% this year, when adjusting for currency fluctuations.

IBM tops quarterly estimates on hybrid cloud growth

April 22 (Reuters) - IBM (IBM.N), opens new tab beat first-quarter profit estimates on Wednesday as artificial intelligence adoption boosted demand for its software services used for managing large amounts of data and automating IT processes. However, shares of the company were down about 6% in extended trading. Enterprise demand for generative AI and hybrid cloud, which lets companies run applications and store data across their own data centers and public clouds, is surging as businesses automate workflows. IBM's software segment, anchored by its high-margin hybrid cloud ⁠unit Red Hat, and a suite of AI tools under the Watsonx brand, grew 11.3% in the first quarter. Big Blue's infrastructure segment, which includes its mainframe computers, has been a bright spot for over a year, as adoption of the latest generation, z17, continues. Revenue in the segment grew 15.2% to $3.33 billion in the quarter. IBM mainframes are secure, high-performance servers that process millions of daily transactions for major banks, airlines and retailers. Investors have also been watching for signs that AI ⁠could threaten parts of IBM's business after shares took a hit in February, when Anthropic said its Claude Code tool could help modernize COBOL, a language widely used on IBM mainframes. Analysts have pushed back on those fears, saying IBM's deep customer ties ⁠and broader AI offerings, including Watson Code Assistant, a coding modernization tool for the mainframe. CFO James Kavanaugh said clients using the tool are seeing faster growth in mainframe consumption. "Gen AI ⁠in modernization of mainframe is actually an accelerator and accretive to the mainframe portfolio overall," he told Reuters in an interview. For the first quarter, IBM ⁠reported revenue of $15.92 billion, beating analysts' average estimate of $15.62 billion, according to data compiled by LSEG. Adjusted profit came in at $1.91 per share, compared with estimates of $1.81 apiece. Reporting by Anhata Rooprai in Bengaluru; Editing by Maju Samuel Our Standards: The Thomson Reuters Trust Principles., opens new tab

IBM revenue growth slows on AI worries; shares fall

IBM's first-quarter revenue growth slowed to 9%, raising concerns about AI's impact on its software business, particularly after a rival tool showed promise in modernizing COBOL. Despite this, infrastructure segment growth remained robust. IBM's CFO highlighted that generative AI is actually accelerating mainframe adoption, suggesting a positive outlook for the company's core offerings. IBM's revenue growth slowed in the first quarter on sluggishness in its software business, fanning fears of disruption from artificial intelligence tools and sending its shares down over 6% after hours on Wednesday. Concerns that AI will eat into the software business have grown with the launch of tools that can automate routine corporate functions. IBM has especially been hit ⁠after Anthropic ⁠said in February one of its tools could help modernize COBOL, a language widely used on the company's mainframes. Big Blue's revenue increased 9% in the first quarter to $15.92 billion, slower than the 12.2% growth in the previous quarter, even as it surpassed analysts' average estimate of $15.62 billion, according to data compiled by LSEG. IBM's software segment, anchored by its high-margin hybrid cloud unit Red Hat, and ⁠a suite of AI tools under the Watsonx brand, also posted slower revenue growth of 11.3%. "The stakes around these results were higher than normal ⁠given the software/services selling pressure the market has seen this year amid AI competition fears, and we do not think Q1's results validated those fears," CFRA analyst Brooks Idlet said. Growth in the company's infrastructure segment remained strong, helped by continued adoption of its latest mainframe systems. Revenue in the segment, which includes mainframe computers, grew 15.2% to $3.33 billion in the quarter. Analysts have said IBM's deep customer ties and AI offerings, such as the Watsonx Code Assistant, a coding modernization tool for the mainframe, could help it against rival AI tools. CFO James Kavanaugh told Reuters clients using the tool ⁠are seeing faster growth in mainframe consumption. "Gen AI in modernization of mainframe is actually an accelerator and accretive to the mainframe portfolio overall," he said. IBM's adjusted quarterly profit came in at $1.91 per share, compared with estimates of $1.81. On a post-earnings call, CEO Arvind Krishna downplayed the impact of the Middle East conflict, saying that IBM had its strongest growth in the region in decades and could absorb disruption from the closure of the Strait of Hormuz for another few weeks.