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IBM Q2 Earnings Beats EPS Estimates, Just Misses on Revenue of $15.48B

IBM Q2 Earnings Beats EPS Estimates, Just Misses on Revenue of $15.48B

The News: IBM’s Q2 earnings include revenue of $15.48 billion in the second quarter of 2023 ending June 30, 2023, down by 0.4% from $15.54 billion one year ago, as IBM reported its latest results on July 19. IBM also reported non-GAAP diluted earnings per share (EPS) of $2.18 for Q2, which beat analyst consensus estimates of $2.02 per share from Investing.com. Read the full Q2 2023 earnings press release on the IBM website.

IBM Q2 Earnings Beats EPS Estimates, Just Misses on Revenue of $15.48B

Analyst Take: It was a strong overall quarter for IBM’s Q2 earnings as Big Blue delivered a solid beat on its bottom line with revenue in line, despite continuing macroeconomic challenges around the globe. We know this sounds like a repetitive message since the Covid-19 pandemic began in March of 2020, but while conditions are easing as the pandemic wanes, there are still challenges for companies like IBM in the global IT economy.

For IBM, there are plenty of positive signs for the future as the company continues to deliver a laser focus on AI everywhere, including on its newly-launched, comprehensive watsonx generative AI and data platform, which aims to make GenAI adoption more manageable and attainable for a wide range of enterprise users. IBM says that at least 120 of its customers have signed up to use watsonx to deliver generative AI results to their employees and businesses.

This is what IBM will be focusing on in Q3 and beyond, as watsonx – one of the industry’s most compelling generative AI offerings for the enterprise market – will ramp up in adoption and deployments after becoming generally available on July 11. The excitement and energy from IBM in connection with its new watsonx offering is palpable, and we expect to see the offering gain lots of attention and adoption in the marketplace as IBM continues to demonstrate how it can transform business processes and help companies gain huge benefits through the power of AI.

IBM is also showing sound progress in Q2 with its Red Hat unit, which continues to grow and serve enterprise customers with quality and innovative open source products and services.

Here are IBM’s Q2 2023 earnings by the numbers:

  • Q2 2023 revenue of $15.48 billion, down 0.4% from $15.54 billion year-over-year. The revenue figure just missed analyst estimates of $15.58 billion from Investing.com.
  • Q2 2023 non-GAAP net income of $2.0 billion for Q2, down 5% YoY.
  • Q2 2023 non-GAAP diluted EPS of $2.18 per share, down 6% YoY, but beating analyst estimates of $2.01 per share from Investing.com.
  • Q2 2023 non-GAAP gross profit of $8.65 billion, up 2.12% from $8.47 billion YoY.
  • Q2 2023 non-GAAP gross profit margin of 55.9%, an increase of 140 basis points and up from 54.5% YoY.
  • Q2 2023 free cash flow of $2.1 billion, up from $2.09 billion YoY.

These are solid numbers and we believe that they show how IBM’s AI and hybrid cloud strategies are continuing to gain deeper traction with customers in the global marketplace.

IBM’s Q2 Revenue by Segment

IBM saw sales growth in its software, consulting, and financing units in Q2, but revenues were down in its infrastructure unit, which saw IBM zSystems revenue down by 30% YoY. IBM attributed the zSystems revenue dip to normal seasonal sales cycle fluctuations in the midst of some bright spots, such as the IBM Z16, a mainframe system with on-chip AI inferencing and quantum-safe technologies, being the most successful instantiation to date of its flagship product.

The software unit brought in $6.6 billion in revenue for the quarter, up 7.2% from $6.17 billion YoY, or up 7.5% in constant currency. Revenue in the hybrid platform and solutions software division was up 6%, or about 7% in constant currency. The Red Hat division was up 11%, while the automation division was up 1%, or up 2% in constant currency. The data and AI division was up 10%, or 11% in constant currency, while the security software division was down 2%, or down 1% in constant currency. The transaction processing software division was up 9%, or up 10% in constant currency.

The consulting unit brought in revenue of $5 billion for Q2, up 4.24% from$4.8 billion YoY, or up 5.9% in constant currency. The business transformation division was up 3%, or up 5% in constant currency, while the technology consulting division was up 4%, or up 5% in constant currency. The application operations software unit was up by 6%, or about 8% in constant currency.

IBM’s infrastructure unit brought in revenue of $3.6 billion, down 14.6% from $4.24 billion YoY, or down 13.8% in constant currency. Hybrid infrastructure was down 18% YoY, while IBM zSystems revenue was down by 30%. Distributed infrastructure was down by 6%, while infrastructure support was down 8%, or down 6% in constant currency.

IBM’s financing unit brought in $200 million in revenue in Q2, up 26.2%YoY, or up 27% in constant currency.

IBM’s Q2 Earnings Report Provides Full-Year 2023 Expectations

IBM also reported that its revenue guidance for the full year of fiscal 2023 continues to call for expected constant currency revenue growth of 3-5%. The company said it also continues to expect about $10.5 billion in free cash flow (FCF) for the full fiscal year, which is up more than $1 billion YoY.

IBM Q2 Earnings Overview

Yes, IBM did miss slightly on its Q2 revenue expectations from analysts, but this was still a healthy quarter for IBM, with nice EPS growth and a positive outlook for the future with its new watsonx AI and data platform.

Contributing to the generally positive Q2 results is the steady leadership of IBM chairman and chief executive officer Arvind Krishna and his executive team, which continue to helm Big Blue through today’s complex and often turbulent macroeconomic environment with confidence.

IBM continues to grow its products and services to meet and exceed the needs and business technology goals of its customers around the world. Its nascent watsonx generative AI and data platform is positioned to make those aspirations even more powerful for the company. We believe that this is a solid strategy for success for Big Blue midway through FY2023 and into the future.

Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed IBM earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.

Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.

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Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.

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