International Business Machines Corp. jumped the most in almost four years after delivering a positive outlook for revenue and cash flow in 2024, even as it expects to reduce jobs.
Free cash flow will be about US$12 billion in the year ending in December, the company said Wednesday in a statement. Analysts, on average, estimated US$10.9 billion, according to data compiled by Bloomberg. Revenue will grow in the “mid-single digits,” the company said. Analysts projected about 3% sales growth.
IBM has focused on streamlining its operations around software and services in recent years, divesting managed infrastructure, weather and health businesses. The Armonk, New York-based company said it will also cut a percentage of positions in the low single digits this year. And IBM has introduced new products to capitalize on growing interest in artificial intelligence (AI).
“Client demand for AI is accelerating and our book of business for watsonx and generative AI roughly doubled from the third to the fourth quarter,” Chief Executive Officer Arvind Krishna said in the statement, referring to the company’s AI platform.
The shares gained 9.5% to US$190.43 at the close Thursday in New York, the biggest single-day increase since March 2020 and the stock’s highest value since June 2013.
“Big Blue is back,” wrote Amit Daryanani, an analyst at Evercore ISI, highlighting the stronger-than-expected full-year guidance. “Our sense is IBM remains an underappreciated AI beneficiary that should continue to work higher over the next few years.”
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IBM’s planned job cuts follow similar announcements in January by major tech companies, including Alphabet Inc.’s Google and Amazon.com Inc. Chief Financial Officer James Kavanaugh said IBM will likely spend the same amount on restructuring as it did last year — US$400 million — when it reduced its workforce by about 3,900 jobs. However, the company continues to hire for certain positions and expects headcount to be about the same at year’s end, he said. IBM had about 288,000 employees at the end of 2023.
“I expect many macro trends to be similar to 2023” in the coming year, Krishna said during a conference call after the results were released. “Every client I speak with is asking about how to boost productivity with AI and manage the technology stack.”
The cash flow outlooks “suggests greater operational efficiencies and steady organic growth,” wrote Bloomberg Intelligence’s Anurag Rana. “We expect IT spending to accelerate more toward 2H, which could lead to steady improvement in consulting growth.”
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Fourth-quarter sales gained 4.1% to US$17.4 billion. Profit, excluding some items, was US$3.87 a share. Analysts, on average, estimated revenue of US$17.3 billion and adjusted earnings of US$3.76 a share.
Consulting revenue increased 6% to US$5 billion, just shy of analyst estimates of US$5.1 billion. Investors have focused on weakness in this business unit in recent quarters as economic uncertainty weighed on customer appetites for large projects.
Software also came in just below expectations — US$7.5 billion in the quarter ended Dec. 31, compared with the US$7.7 billion projected. Red Hat, the software division IBM acquired in 2019, posted sales growth of 8%, another comparatively slow period for a business that once regularly jumped more than 20% each quarter.
(Updated on Jan 26, 5.12 AM with closing share price in the fifth paragraph.)
