IBM fails its yearly cash target and eliminates 3,900 positions
- ByStartupStory | January 26, 2023
In addition to missing its annual cash target,IBM Corp. on Wednesday disclosed 3,900 layoffs as a result of some asset sales, which put a damper on the excitement over exceeding fourth-quarter revenue estimates.
According to James Kavanaugh, the chief financial officer, the business is “dedicated to hiring for client-facing research and development.”
The layoffs, which are connected to the separation of IBM’s Kyndryl business and a portion of Watson Health’s AI division, would result in a $300 million charge between January and March, the company said.
In extended trade, the company’s shares decreased 2%, wiping off earlier gains on the generally positive results. Analysts claimed that the decline was caused by news of the layoffs and a negative free cash flow.
“It seems as if the market is disappointed by the size of its announced job cuts, which only amounted to 1.5% of its workforce,” said Jesse Cohen, senior analyst at Investing.com.
Investors anticipated more extensive cost-cutting efforts. U.S. businesses have been actively cutting expenses and shrinking their workforces to better adapt to the global economic crisis, from Big Tech to the main Wall Street banks.
Due to higher-than-anticipated working capital requirements, IBM’s 2022 cash flow was $9.3 billion, falling short of its forecast of $10 billion.
In constant currency terms, the company also predicted yearly sales growth in the mid-single digits, which is weaker than the 12% it reported in 2017. This is because the pandemic-driven need for enterprises to digitise has given way to a cautious consumer market amid mounting recession fears.
While competitor Accenture Plc highlighted deterioration in its consulting business in October, IBM noted slowdown in new bookings in Western Europe. Due to a decline in contracts, Cognizant Technology Solutions Corp. reduced its 2022 projection in November.
In the fourth quarter, IBM’s software and consultancy business growth fell sequentially, but cloud expenditure was a bright light, with deal signings for setting up services with partners like Amazon.com’s AWS and Microsoft’s Azure doubling in 2022.
Revenue from its hybrid cloud increased 2% in the quarter ending December 31. Refinitiv reported that total revenue for the period was steady at $16.69 billion compared to analysts’ projections of $16.40 billion. IBM reported sales growth of 5.5% in 2022, the highest level in a decade.
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