Written by Shafi Mehta
(Reuters) – IBM’s second-quarter revenue fell short of Wall Street expectations on Wednesday, dragged down by tepid corporate spending.
IT service providers have warned of more pain as companies scrambling to cut costs in the face of rising inflation cut technology budgets, hurting an industry that saw rapid growth during the COVID-19 pandemic when companies rushed to adopt hybrid work.
Big IT companies such as Accenture and India’s Tata Consultancy Services also cited weaker demand, with no prior market estimates for quarterly revenue last month after their revenue in North America grew at its slowest rate in nearly three years.
Revenue in IBM’s largest segments, software and consulting, increased at a slower pace during the quarter compared to its sharp growth in the prior year, as demand waned in key markets in the United States and Europe.
Chief Financial Officer James Kavanaugh said in an interview that revenue growth in the United States and Western Europe was “soft” as the company ended the cycle of mainframe computers it launched last year.
IBM reported that the top line of its business comprising mainframe computers shrank 14.6%.
Total revenue for the quarter ended June 30 fell 0.4% to $15.48 billion, compared to an average analyst estimate of $15.58 billion, according to Refinitiv data.
IBM has joined technology companies in strengthening its AI offering, launching the watsonx platform in May to help companies integrate generative AI into their products and services following the impressive success of its ChatGPT chatbot.
Analysts expect watsonx to help the software business, which grew 7.2% to $6.6 billion during the reported quarter, thanks to enterprise digitization projects.
Net income rose to $1.58 billion, or $1.72 per share, compared to $1.39 billion, or $1.53 per share, a year earlier.
(Reporting by Shafi Mehta in Bengaluru; Editing by Vinay Dwivedi)