IBM profit jumps 16% but company will cut 3,900 jobs

Net profit during the October-December period rose to more than $2.7bn

IBM's fourth quarter revenue remained flat at more than $16.6 billion. Reuters

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.

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.