International Business Machines Corp (IBM) Q3 2024 Earnings Call Highlights: Strong Software ...

GuruFocus News
4 min read

In This Article:

  • Revenue: $15 billion in the third quarter, up 2% at constant currency.

  • Adjusted EBITDA: $3.8 billion.

  • Operating Pretax Income: $2.5 billion.

  • Operating Diluted Earnings Per Share: $2.30.

  • Free Cash Flow: $6.6 billion year-to-date, up $1.5 billion year-over-year.

  • Software Revenue Growth: 10%, with Red Hat contributing 14% growth.

  • Software Segment Profit Margin: Approximately 30%.

  • ARR for Hybrid Platform and Solutions: $14.9 billion, up 11% year-over-year.

  • Consulting Revenue: Flat, impacted by macroeconomic environment.

  • Infrastructure Revenue: Down 7%, with IBM Z revenue declining 19%.

  • Gross Margin Expansion: Operating gross margin expanded by 210 basis points.

  • Operating Pretax Margin Expansion: 100 basis points over last year.

  • Debt Balance: $56.6 billion, including $10.4 billion from financing business.

  • Cash Position: Approximately $14 billion.

Release Date: October 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • International Business Machines Corp (NYSE:IBM) reported double-digit revenue growth in its software segment, driven by strong performance in Red Hat and transaction processing.

  • The company achieved the highest levels of cash generation in the first nine months in many years, indicating strong operational efficiency.

  • IBM's AI-related business has grown significantly, with a book of business over $3 billion, highlighting its leadership position in the AI market.

  • The software segment profit margin was approximately 30%, reflecting strong profitability in this area.

  • IBM's strategic focus on hybrid cloud and AI is paying off, with software now comprising nearly 45% of total revenue, up from the high 20s in 2018.

Negative Points

  • Consulting revenue was flat and at the lower end of expectations, impacted by economic uncertainty and a pause in discretionary spending.

  • Infrastructure revenue declined by 7%, reflecting product cycle dynamics and challenges in the market.

  • The consulting market remains dynamic, with clients reprioritizing spending, which has led to a decline in overall signings for the second consecutive quarter.

  • Currency fluctuations are expected to be a headwind, with a 0.5 point impact on revenue growth in the fourth quarter.

  • Despite strong software growth, the overall revenue growth for the quarter was only 2% at constant currency, indicating mixed performance across segments.

Q & A Highlights

Q: Arvind, how does IBM plan to achieve upward inflection in growth for 2025, particularly in Software and Consulting? A: Arvind Krishna, CEO, explained that IBM expects significant growth in Software driven by Red Hat's performance, traction in Gen AI products, and automation suite. Consulting is expected to see positive growth due to a strong book of business with hyperscalers and ISV partners, despite current macroeconomic challenges. Infrastructure is also anticipated to contribute positively by mid-2025.

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