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IBM reports highest annual revenue growth in a decade

25.01.2023

On Wednesday, IBM Corp reported its highest annual revenue growth in a decade and beat Wall Street expectations for the fourth quarter, as more businesses looked to optimize their operations and save costs amid an economic downturn.

The IT software and consulting company also forecast annual revenue growth in the mid-single digits on constant currency terms, which is less than the 12% it reported for 2022, but in line with mid-term targets announced in 2021.

Analysts have raised concerns if IBM would be able to deliver on that given the turbulent macroeconomic backdrop.

Big Blue predicted for slower growth after a boom over the pandemic when companies splurged on digitizing their operations. There are rising borrowing costs and recession fears that are forcing businesses to tighten spending.

In October, IBM highlighted weakness in its consulting business, while Accenture Plc noted weakness in its consulting business, as it flagged softness in new bookings in Western Europe. Cognizant Technology Solutions Corp cut its forecast in November due to a pullback in contracts.

On Wednesday, IBM Chief Financial Officer James Kavanaugh told Reuters that the company is seeing its consulting business grow in terms of cloud spending. He said that it doubled its deal signings in 2022 for setting up services with hyperscaler partners such as Amazon.com's AWS and Microsoft's Azure.

I can't stress that enough enterprise clients are looking at how they can optimize their application portfolio and consumption requirement. It's expected that cloud-related contracts will stay more resilient than other IT projects, according to analysts.

IBM's full-year revenue grew 5.5% to $60.53 billion thanks to the shift to the so-called hybrid cloud strategy, where the company helps clients set up their own data centers and use leased computing resources.

Its hybrid cloud revenue increased by 2% to $6.3 billion in the quarter.

The 110-year old company, which makes more than half of its revenue outside the United States, said it expects a neutral foreign exchange effect on its business this year, as the U.S. dollar weakens. It booked a forex hit of more than $1 billion during the fourth quarter.

Revenue growth was flat at $16.69 billion in the quarter ending December 31, compared to analysts' estimates of $16.40 billion, according to Refinitiv data.