IBM to cut about 3,900 workers

Firm is still hiring in ‘higher growth’ areas

“Another key metric that stood out to us was the free cashflow outlook of Us$10.5bil (Rm44.6bil) for the full year, which we believe now gives it some flexibility to pursue a software acquisition, especially given the recent decline in valuations.” anurag rana

NEW YORK: International Business Machines Corp (IBM) delivered an upbeat annual sales forecast while announcing it would eliminate about 1.5% of its global workforce, following similar job cuts the past few months by many of its technology peers.

The reductions will amount to a “ballpark” figure of 3,900, chief financial officer James Kavanaugh said in an interview.

The cuts will focus on workers remaining after spinning off the Kyndryl and Watson Health units and will cost the company about Us$300mil (Rm1.3bil), he said.

IBM still expects to hire in the “higher-growth areas,” Kavanaugh said.

In its forecast, IBM said free cashflow in fiscal 2023 is expected to be Us$10.5bil (Rm44.7bil) while revenue will increase in the mid-single digits.

Analysts, on average, estimated Us$9.18bil (Rm39.1bil) of free cashflow and annual sales growth of 1.2%, according to data compiled by Bloomberg.

IBM is being helped by a weakening US dollar expected in 2023, Kavanaugh said.

The effect of currency fluctuations should be neutral overall in 2023 – they’ll drag on results in the first half while becoming a tailwind in the second half, he said.

Shares declined about 2% in extended trading after closing at US$140.76 (RM599.36) in New York.

The stock increased 5.4% in 2022, one of the few major technology companies that gained value during the year.

Chief executive officer Arvind Krishna has been trying to pivot Big Blue from its traditional business of infrastructure and information-technology services to the fast-growing cloud-computing market.

The company’s revenue increased in 2022 for the second consecutive year after almost a decade of no growth or slipping sales.

Fourth-quarter revenue was unchanged at Us$16.7bil (Rm71.1bil), the Armonk, New York-based company said in a statement. Analysts, on average, estimated Us$16.4bil (Rm69.3bil).

Earnings, excluding some items, were US$3.60 (RM15.29) a share in the period ended Dec 31, while analysts projected US$3.58 (RM15.21) a share.

The outlook “signals steady demand for its consulting and software products,” Anurag Rana, an analyst at Bloomberg Intelligence, said in a note after the results.

“Another key metric that stood out to us was the free cashflow outlook of Us$10.5bil (Rm44.6bil) for the full year, which we believe now gives it some flexibility to pursue a software acquisition, especially given the recent decline in valuations.”

Hybrid cloud revenue was Us$22.4bil (Rm95.2bil) in 2022, up 11% from a year earlier.

Krishna’s strategy has been focused on bolstering the company’s offerings in hybrid cloud – providing services to customers that run their own data centres in some combination with public cloud providers such as Amazon.com Inc and Microsoft Corp.

Sales in the software unit increased 2.8% to Us$7.29bil (Rm30.9bil) while infrastructure was up 1.6% to Us$4.48bil (Rm19.1bil). Analysts had expected declines in both categories. Consulting gained 0.5% to Us$4.77bil (Rm20.3bil).

Revenue produced by Red Hat, the acquired division that has been a key part of Krishna’s strategy, increased 10%, another comparatively slow quarter for a unit that regularly posted growth of more than 20%.

IBM’S current headcount is 260,000, Kavanaugh said. That is about 22,000 lower than the figure disclosed for December 2021.