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IBM falls as slowing enterprise spending pressure consulting growth

IBM falls as slowing enterprise spending pressure consulting growth

FILE PHOTO: Figurines with computers and smartphones are seen in front of IBM logo in this illustration taken, February 19, 2024. REUTERS/Dado Ruvic/Illustration/File Photo

:IBM shares fell more than 6 per cent on Thursday, as reduced enterprise spending on non-GenAI projects pressured its consulting segment, clouding software unit strength.

If losses hold, its $214 billion market valuation could drop by over $13 billion.

An uncertain economic outlook pushed IBM's customers to reduce discretionary spending and prioritize GenAI projects, impacting growth in its consulting services.

"Infrastructure, which had been strong YTD, slowed ahead of the FY/25 refresh cycle while consulting continued to see headwinds around discretionary spend reflected in declining signings," RBC Capital Markets analysts said.

Total revenue rose about 1 per cent to $14.97 billion, missing estimates of $15.07 billion, according to data compiled by LSEG.

"The pause in discretionary spending shows continued IT budget constraints (particularly for non-AI) near term, but a glimmer of hope for 2025 growth durability," said Piper Sandler analysts.

IBM's software segment, however, was a bright spot in the third quarter, achieving 9.7 per cent revenue growth to $6.52 billion, as enterprises expand cloud infrastructure to cater to GenAI technology.

The company expects revenue trends to continue in the next quarter including strength from software, but headwinds in consulting from discretionary spend and infrastructure ahead of next year's refresh.

Analysts at BofA Securities expect consulting to remain weaker in the first half of 2025 but offset by accelerating software and mainframe cycle.

Source: Reuters

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