Consulting, software boost IBM revenue as it turns to AI

Strong performances in software and consulting helped IBM’s profit and revenue increase in the first quarter, even as a post-pandemic slowdown hit much of the technology industry.

IBM’s software and consulting revenue both rose 3% year over year. In the software segment, IBM’s enterprise Linux unit, Red Hat, saw growth of 8%, while application operations saw the highest level of growth in the consulting segment, rising by 7%.

The strong showing from software and consulting help boost total profit by a healthy 26%, to $927 million, and revenue by .4%, to $14.3 billion, for the quarter ending March 31, according to IBM’s earnings report, issued late Thursday. The strong dollar had a negative effect on sales — in term of constant currency, taking out the effect of currency fluctuations, IBM revenue rose by 4%.

IBM now receives about three-quarters of its annual revenue from tech services, but the company is seeing some deceleration in consulting from the previous robust growth levels, chairman and CEO Arvind Krishna said on a call with analysts after the results had been published.

“More recently, clients are prioritizing digital transformation projects that focus on cost takeout, productivity and quick returns,” he said.

This trend was further reflected in IBM’s infrastructure segment, which was down 3.7% year on year; within the Hybrid Infrastructure business, z Systems revenue was up 7%. This was driven by fourth quarter z16 availability, with its performance having outpaced prior cycles due to customers leveraging it for AI at scale and energy efficiency, Krishna told analysts.

Focus on artificial intelligence

Commenting on IBM’s ongoing focus, Krishna said that hybrid cloud and artificial intelligence would be a priority for driving both business outcomes and innovation this year.

He noted that while AI is projected to add $16 trillion to the global economy by 2030, its use case within the enterprise differs widely from the AI being offered to consumers, given its need for more accurate results, trusted data and governance tools.

“We are seeing a lot more interest from business and using AI to boost productivity and reduce costs,“ Krishna said. “Productivity gains will come from enterprises turning their workflows into simpler automated processes with AI.”

Krishna said IBM will be focused on using AI to help organizations enhance internal audit and compliance processes and automate call center responses to improve accuracy and customer satisfaction.

GlobalFoundries lawsuit

On the same day IBM posted its first quarter 2023 financial results, chip manufacturer GlobalFoundries announced it was launching a lawsuit against the company, accusing it of unlawfully sharing confidential intellectual property and trade secrets with Japanese chip maker Rapidus.

IBM announced in 2021 that it had developed a 2nm chip, and then late last year unveiled a partnership with Rapidus calling for commercial production of 2nm chips, with manufacturing done in Japan. Chips made with the 2nm manufacturing process will be used for a wide range of applications and machines, from laptops to high performance computing servers, and are expected to slash the carbon footprint of data centers due to optimized performance.

The GlobalFoundries complaint asserts that IBM unlawfully disclosed its confidential IP and trade secrets after IBM sold its microelectronics business in 2015.

The company also alleges that IBM has been undertaking “unlawful recruitment efforts” by poaching GlobalFoundries engineering staff, a practice that it alleges has accelerated since the Rapidus partnership was announced in December 2022.

GlobalFoundries has asked the court to order an end to those recruitment efforts and is seeking compensatory and punitive damages as well as an injunction against IBM to stop the “unlawful disclosure and use” of GlobalFoundries’ trade secrets.

IBM has denied the allegations, contained in a complaint to federal court in the Southern District of New York in which GlobalFoundries asks for compensatory and punitive damages as well as an injunction against IBM to prevent further disclosure and use of what GlobalFoundries considers its trade secrets.