IBM reports rise in Q4 profit, but plans to cut 3,900 jobs

IBM reported net income  of $2.9 billion in the fourth quarter of 2022 and year-on-year increases in revenue across all three of its business segments.

That’s an increase in net income of 9% compared to the total reported for the corresponding quarter of 2021, or 17% comparing only continuing operations: IBM spun off most its infrastructure management division as a new business, Kyndryl, in November 2021, and sold some assets of its Watson Health business in January 2022.

On a conference call with analysts to discuss the results, CFO Jim Kavanaugh alluded vaguely to this leaving IBM with some stranded costs in its business, saying, “We expect to address these remaining stranded costs early in the year and anticipate a charge of about $300 million in the first quarter.”

Later that day, in an interview with Bloomberg, Kavanaugh explained that eliminating those stranded costs — staff left with nothing to do following the asset disposals —  would result in IBM cutting about 3,900 jobs, or 1.5% of its workforce. An IBM representative said the company had “nothing further to add.”

IBM CEO Arvind Krishna said on the call with analysts that the company’s fourth quarter and full year results demonstrate the successful execution of its hybrid cloud and AI strategy.

He noted that IBM was continuing to invest in large language and foundation models — the technologies behind tools like ChatGPT — and is infusing these capabilities across the company’s AI portfolio. In addition, Krishna said that business with strategic partners, including SAP, Microsoft and AWS, had generated over $1 billion in revenue for the year.

“I’m confident in our ability to leverage hybrid cloud and AI to help clients turn business challenges into opportunities,” he said.

Growth across all lines of business

Krishna told analysts that IBM had delivered strong revenue growth across its business, with results “broad-based” across its software, consulting, and infrastructure segments as well as across geographies.

Software sales for the fourth quarter rose 2.8% from a year earlier, to $7.3 billion, while infrastructure sales rose 1.6% to of $4.5B.

Consulting revenue also grew, but by just 0.5%, to $4.8 billion. If it continues at that rate, it will fall behind the market: Gartner forecast that global spending on consulting will grow 6.7% this year to $264.9 billion.

IBM’s software segment was boosted by sales of its hybrid platform and solutions, up 5%, while automation, data and AI, and security all contributed growth of 4%; transaction processing revenue was down by 3%. Revenue generated by Red Hat accounted for the biggest area of growth in this segment, up 10% from a year earlier.

The biggest driver in the infrastructure segment was the zSystems line of mainframe computers, up 16% after the z16 model became generally available in May. However, distributed infrastructure revenue remained flat and infrastructure support was down by 8% year on year.

Kavanaugh said on the conference call that he hopes to squeeze another $200 million profit from the infrastructure segment in 2023 by extending the period over which it amortizes the cost of its IT assets. “Due to advances in technology, we are making an accounting change to extend the useful life of our server and networking equipment,” he said. “Given this is a change to the depreciation, there’s no benefit to cash.”