Geopolitical events put pressure on IBM revenues

IBM delivered its profit for the second quarter of 2022 last night, with revenue of $15.5 billion, up 9% year over year at an adjusted gross profit margin of 54.5% for the quarter ended June 30.

However, the current geopolitical landscape remains a challenge for the technology provider, as CFO James Kavanaugh told analysts that both the currency headwinds and the impact of the Russian exit have weighed on IBM’s prospects.

“With the year-over-year lost business from the run-down, Russia impacted our earnings results by about $100 million,” he said.

The strengthening of the dollar against a number of currencies is also proving difficult for large multinationals like IBM to resist. Kavanaugh said the company expects a revenue decline of about 6% this year.

All of this has led IBM to cut its full-year free cash flow from the $10 billion – $10.5 billion it forecast in April to “about $10 billion.” As a result of the announcement, IBM shares fell as much as 4% in after-hours trading.

Strong department growth

Despite these global challenges, growth in most of IBM’s business units remained strong. The company’s consulting division generated revenue of $4.8 billion, up 9.8% year over year, while its infrastructure unit, which includes mainframe computing, hybrid infrastructure and infrastructure support, contributed $4.2 billion in revenue, an increase of almost 19% year on year year.

IBM’s software division also performed strongly, with revenue of $6.2 billion, up 6.4%. Hybrid cloud and transaction processing delivered the company’s biggest revenue growth this quarter, growing 14% and 12% respectively.

Red Hat, IBM’s open source software subsidiary with a newly appointed president and CEO, also performed well this quarter, with revenue up 12%.

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