{"id":5572,"date":"2023-10-26T09:47:00","date_gmt":"2023-10-26T09:47:00","guid":{"rendered":"https:\/\/infundpros.com\/markets\/ibm-earnings-edge-estimates-the-ai-bet-is-starting-to-pay-off-ceo-says\/"},"modified":"2023-10-26T09:47:00","modified_gmt":"2023-10-26T09:47:00","slug":"ibm-earnings-edge-estimates-the-ai-bet-is-starting-to-pay-off-ceo-says","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=5572","title":{"rendered":"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says."},"content":{"rendered":"
\n
<\/p>\n

<\/p>\n

<\/p>\n<\/figure><\/div>\n

\n IBM\u2019s<\/span>
\n third-quarter earnings edged Wall Street estimates, and its CEO says the company\u2019s push into artificial intelligence is starting to pay off.<\/p>\n

Results were marked by continued solid growth in software, moderating expansion of the consulting business, and better-than-expected performance by the IBM\u2019s mainframe business. The company also confirmed its previous full-year guidance for revenue and cash flow growth.<\/p>\n

\n

IBM (ticker: IBM) has been making a big effort to offer generative artificial intelligence tools, and CEO Arvind Krishna told Barron\u2019s<\/em> the strategy is beginning to pay off. Customers are increasingly adopting IBM\u2019s Watson X AI platform, he said.\u00a0On the company\u2019s conference call with analysts, Krishna said bookings in the third quarter included \u201clow hundreds of millions of dollars\u201d from generative AI projects, which implies a run rate of about $1 billion a year.<\/p>\n

For the quarter, the enterprise technology giant posted revenue of $14.75 billion, up 4.6% from a year ago, and slightly ahead of the Wall Street consensus forecast at $14.73 billion.\u00a0IBM reported adjusted earnings of $2.20 a share, 8 cents ahead of the Street consensus at $2.12, as measured by FactSet. Under generally accepted accounting principles, the company earned $1.86 a share.<\/p>\n

Revenue in IBM\u2019s software segment\u2014which includes its AI platform\u2014rose 7.8% from a year ago to $6.3 billion, about in line with Street estimates; growth was 6% when adjusted for currency. That includes better-than-expected performance by the company\u2019s transaction processing business\u2014offset by a miss by Red Hat, which grew revenue 8% on a constant currency basis, a couple of points short of expectations.<\/p>\n

In an interview with Barron\u2019s<\/em>, Krishna noted that software revenue growth was in line with his previous forecast for an increase in the mid-single-digits range on a constant currency basis. But for Red Hat, the company had expected growth to be more like 10% on a constant currency basis, Krishna said. <\/p>\n

\u201cWe took our eye off the ball a little bit,\u201d he said. \u201cThere\u2019s no fundamental issue, but it was a little bit of an execution miss.\u201d<\/p>\n

Consulting revenue was $5 billion, up 5.6%, slower than the Street consensus forecast for 8.7% growth\u2014but consistent with the recent softer growth at rival
\n Accenture
\n (ACN). Infrastructure revenue was $3.3 billion, down 2.4%, but ahead of the Street forecast for a 7.5% decline. It was helped by 9% growth in the zSystems mainframe business.<\/p>\n

Krishna conceded that growth in consulting was \u201cgood but not great,\u201d and consistent with recent earnings reports from other consulting firms. Mainframe demand remains resilient, however, he said, and contributed to the growth in transaction processing in the quarter.<\/p>\n

IBM generated $1.7 billion in free cash flow in the third quarter, up nearly $1 billion from the year-ago period. IBM continues to forecast full-year free cash flow of about $10.5 billion, up more than $1 billion from the previous year. <\/p>\n

Krishna said IBM has to beat year-ago cash flow performance only by about $300 million in the fourth quarter to hit the company\u2019s $10.5 billion target. \u201cWe\u2019re in a much better position than we\u2019ve been in a while,\u201d he said.<\/p>\n

IBM also said it continues to see full-year constant currency revenue growth of 3% to 5%. It expects foreign exchange to be about a one percentage point headwind for reported growth.<\/p>\n

Non-GAAP operating margin was 15.6%, falling a little short of consensus at 16.6%, but nonetheless 1.7 percentage points higher than the year earlier period. Non-GAAP gross margin was 55.5%, up 1.6 percentage points from the year-earlier quarter.<\/p>\n

Krishna also commented on recent cloud spending trends. Both
\n Microsoft
\n (MSFT) and
\n Alphabet
\n (GOOGL), when reporting financial results on Tuesday, noted that customers continue to look for ways to optimize their cloud spending. Krishna says that trend continues. The CEO also suggested that it partly explains why Microsoft seems to be accelerating when Google\u2019s cloud business is showing slowing growth.\u00a0<\/p>\n

\u201cOverall there\u2019s some caution around total cloud adoption,\u201d Krishna says. \u201cCloud is not going away, but the days of 50% and 100% growth are over. Those companies that are entrenched\u2014Microsoft and
\n Amazon
\n (AMZN)\u2014are going to keep winning.\u201d<\/p>\n

As for the impact of AI spending on overall IT budgets, Krishna sees an issue for the broader software industry. Overall annual IT spending is about $4.6 trillion, with about $2.5 trillion of that for hardware, he noted. That leaves about $2 trillion. But some software companies predict that IT software budgets are eventually going to double from here to cover the added costs introduced by AI applications. <\/p>\n

\u201cIt has to come from something else? What? Energy? Defense? Food? I don\u2019t think so,\u201d Krishna says. <\/p>\n

While Krishna concedes that AI-boosted efficiencies could lead to reduced spending on sales and administrative expenses, the potential savings aren\u2019t big enough to cover the anticipated budget growth. One outcome he foresees is that the number of IT vendors in the market consolidates\u2014and IT market share for large vendors gets bigger.<\/p>\n

Write to Eric J. Savitz at eric.savitz@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

IBM\u2019s third-quarter earnings edged Wall Street estimates, and its CEO says the company\u2019s push into artificial intelligence is starting to pay off….<\/p>\n","protected":false},"author":1,"featured_media":5573,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25],"tags":[],"class_list":{"0":"post-5572","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets"},"yoast_head":"\nIBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says. | inFundPros<\/title>\n<meta name=\"description\" content=\"IBM\u2019s third-quarter earnings edged Wall Street estimates, and its CEO says the company\u2019s push into artificial intelligence is starting to pay off. Results\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/infundpros.com\/?p=5572\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says. | inFundPros\" \/>\n<meta property=\"og:description\" content=\"IBM\u2019s third-quarter earnings edged Wall Street estimates, and its CEO says the company\u2019s push into artificial intelligence is starting to pay off. Results\" \/>\n<meta property=\"og:url\" content=\"https:\/\/infundpros.com\/?p=5572\" \/>\n<meta property=\"og:site_name\" content=\"inFundPros\" \/>\n<meta property=\"article:published_time\" content=\"2023-10-26T09:47:00+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/1698313620_social.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"1280\" \/>\n\t<meta property=\"og:image:height\" content=\"640\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Press Room\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Press Room\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/infundpros.com\/?p=5572#article\",\"isPartOf\":{\"@id\":\"https:\/\/infundpros.com\/?p=5572\"},\"author\":{\"name\":\"Press Room\",\"@id\":\"https:\/\/infundpros.com\/#\/schema\/person\/87f7e632b195ea95c91503d9281f5eff\"},\"headline\":\"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says.\",\"datePublished\":\"2023-10-26T09:47:00+00:00\",\"dateModified\":\"2023-10-26T09:47:00+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/infundpros.com\/?p=5572\"},\"wordCount\":825,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/infundpros.com\/#organization\"},\"articleSection\":[\"Markets\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/infundpros.com\/?p=5572#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/infundpros.com\/?p=5572\",\"url\":\"https:\/\/infundpros.com\/?p=5572\",\"name\":\"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says. | inFundPros\",\"isPartOf\":{\"@id\":\"https:\/\/infundpros.com\/#website\"},\"datePublished\":\"2023-10-26T09:47:00+00:00\",\"dateModified\":\"2023-10-26T09:47:00+00:00\",\"description\":\"IBM\u2019s third-quarter earnings edged Wall Street estimates, and its CEO says the company\u2019s push into artificial intelligence is starting to pay off. Results\",\"breadcrumb\":{\"@id\":\"https:\/\/infundpros.com\/?p=5572#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/infundpros.com\/?p=5572\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/infundpros.com\/?p=5572#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/infundpros.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says.\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/infundpros.com\/#website\",\"url\":\"https:\/\/infundpros.com\/\",\"name\":\"Fintech Advance\",\"description\":\"Latest Finance and Tech News and Updates\",\"publisher\":{\"@id\":\"https:\/\/infundpros.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/infundpros.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/infundpros.com\/#organization\",\"name\":\"Fintech Advance\",\"url\":\"https:\/\/infundpros.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/infundpros.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/tech-logo.png\",\"contentUrl\":\"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/tech-logo.png\",\"width\":409,\"height\":70,\"caption\":\"Fintech Advance\"},\"image\":{\"@id\":\"https:\/\/infundpros.com\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/infundpros.com\/#\/schema\/person\/87f7e632b195ea95c91503d9281f5eff\",\"name\":\"Press Room\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/infundpros.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/avatar_user_1_1697230663-96x96.png\",\"contentUrl\":\"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/avatar_user_1_1697230663-96x96.png\",\"caption\":\"Press Room\"},\"sameAs\":[\"https:\/\/infundpros.com\"],\"url\":\"https:\/\/infundpros.com\/?author=1\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says. | inFundPros","description":"IBM\u2019s third-quarter earnings edged Wall Street estimates, and its CEO says the company\u2019s push into artificial intelligence is starting to pay off. Results","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/infundpros.com\/?p=5572","og_locale":"en_US","og_type":"article","og_title":"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says. | inFundPros","og_description":"IBM\u2019s third-quarter earnings edged Wall Street estimates, and its CEO says the company\u2019s push into artificial intelligence is starting to pay off. Results","og_url":"https:\/\/infundpros.com\/?p=5572","og_site_name":"inFundPros","article_published_time":"2023-10-26T09:47:00+00:00","og_image":[{"width":1280,"height":640,"url":"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/1698313620_social.jpeg","type":"image\/jpeg"}],"author":"Press Room","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Press Room","Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/infundpros.com\/?p=5572#article","isPartOf":{"@id":"https:\/\/infundpros.com\/?p=5572"},"author":{"name":"Press Room","@id":"https:\/\/infundpros.com\/#\/schema\/person\/87f7e632b195ea95c91503d9281f5eff"},"headline":"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says.","datePublished":"2023-10-26T09:47:00+00:00","dateModified":"2023-10-26T09:47:00+00:00","mainEntityOfPage":{"@id":"https:\/\/infundpros.com\/?p=5572"},"wordCount":825,"commentCount":0,"publisher":{"@id":"https:\/\/infundpros.com\/#organization"},"articleSection":["Markets"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/infundpros.com\/?p=5572#respond"]}]},{"@type":"WebPage","@id":"https:\/\/infundpros.com\/?p=5572","url":"https:\/\/infundpros.com\/?p=5572","name":"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says. | inFundPros","isPartOf":{"@id":"https:\/\/infundpros.com\/#website"},"datePublished":"2023-10-26T09:47:00+00:00","dateModified":"2023-10-26T09:47:00+00:00","description":"IBM\u2019s third-quarter earnings edged Wall Street estimates, and its CEO says the company\u2019s push into artificial intelligence is starting to pay off. Results","breadcrumb":{"@id":"https:\/\/infundpros.com\/?p=5572#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/infundpros.com\/?p=5572"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/infundpros.com\/?p=5572#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/infundpros.com\/"},{"@type":"ListItem","position":2,"name":"IBM Earnings Edge Estimates. The AI Bet Is Starting to Pay Off, CEO Says."}]},{"@type":"WebSite","@id":"https:\/\/infundpros.com\/#website","url":"https:\/\/infundpros.com\/","name":"Fintech Advance","description":"Latest Finance and Tech News and Updates","publisher":{"@id":"https:\/\/infundpros.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/infundpros.com\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/infundpros.com\/#organization","name":"Fintech Advance","url":"https:\/\/infundpros.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/infundpros.com\/#\/schema\/logo\/image\/","url":"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/tech-logo.png","contentUrl":"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/tech-logo.png","width":409,"height":70,"caption":"Fintech Advance"},"image":{"@id":"https:\/\/infundpros.com\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/infundpros.com\/#\/schema\/person\/87f7e632b195ea95c91503d9281f5eff","name":"Press Room","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/infundpros.com\/#\/schema\/person\/image\/","url":"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/avatar_user_1_1697230663-96x96.png","contentUrl":"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/avatar_user_1_1697230663-96x96.png","caption":"Press Room"},"sameAs":["https:\/\/infundpros.com"],"url":"https:\/\/infundpros.com\/?author=1"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/infundpros.com\/index.php?rest_route=\/wp\/v2\/posts\/5572","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/infundpros.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/infundpros.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/infundpros.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/infundpros.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5572"}],"version-history":[{"count":1,"href":"https:\/\/infundpros.com\/index.php?rest_route=\/wp\/v2\/posts\/5572\/revisions"}],"predecessor-version":[{"id":5574,"href":"https:\/\/infundpros.com\/index.php?rest_route=\/wp\/v2\/posts\/5572\/revisions\/5574"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/infundpros.com\/index.php?rest_route=\/wp\/v2\/media\/5573"}],"wp:attachment":[{"href":"https:\/\/infundpros.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5572"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/infundpros.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5572"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/infundpros.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5572"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}