2022/04 - IDC Link - Doc # lcUS49054222

IBM FY 1Q22 Earnings: Strength Aligning with Customers' Needs in Disruptive Times

By: Rick Villars, Dave McCarthy, Lara Greden, Ritu Jyoti, Gard Little

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Abstract ：Overview

IBM's earning release for 1Q 2022 reported revenue of $14.2 billion, representing Y/Y growth of 8% (11% at constant currency – the balance of this document will use growth in constant currency unless otherwise noted). Free cash flow was strong with a nearly $1.2 billion base. Arvind commented on the steps that IBM is taking to assist it employees affected by the Russia-Ukraine war as well as the impact on IBM's revenues and cash. IBM's commitment to significant talent investments will help it respond to customers' staffing cost concerns related to inflation while also allowing it to stay competitive in the consulting business. This is an area where any impact on Free Cash Flow for IBM and its competitors will need to be watched carefully.

Software revenue was $5.8 billion (15% growth). Incremental sales to Kyndryl accounted for 8 points overall. Transaction Processing was a major contributor and benefited from the incremental sales to Kyndryl, growing by 31% (28 points attributable to Kyndryl). The strategic emphasis on hybrid cloud and AI was evident with 10% growth (Kyndryl accounted for only 1.5 points). This overall rate is in line with growth rates in the software industry. Red Hat (21% growth) continues to lead IBM's software expansion while Automation (5% growth), Data & AI (4% growth), and Security (8% growth) also contributed. Annual recurring revenue (ARR) for Hybrid Platform & Solutions delivered as-a-Service ended the quarter at $13 billion, up 9% year over year.

Consulting remained the star segment for the second straight quarter, reporting 17% growth to $4.8 billion in revenue. Total Consulting signings were up over 40% y/y with double digit growth across all subsegments and geographies. IBM's book to bill ratio was 1.1, providing clear signs of that growth is sustainable. Business Transformation (19%) and Technology Consulting (19%) continued to grow faster than the market, indicating sustained share gain in these important areas. IBM Consulting reported 130 new Red Hat engagements in the quarter, doubling the number of new projects signed a year ago. Services related to cloud initiatives (including more hybrid cloud projects where IBM is coordinating with other leading cloud providers) grew 29% year over year to $2.1 billion.

Infrastructure revenue was flat at $3.2 billion thanks to an assist from incremental sales related to Kyndryl of 8 points. Distributed Infrastructure, building on strong high-end Power sales, showed the most strength (8% growth) in this segment. IBM executives remain optimistic that a new IBM Z16 announced in early April and launching in late Q2 will make a strong contribution to results for the remainder of the year. IBM also provides a revenue breakdown based on elements in its Software, Consulting, and Systems units associated with what it calls Hybrid Cloud. The company reported 1Q22 revenues for these products/services of $5.0 billion (17% growth).