IBM is “reviewing the implications of these shifts in trade policy and evaluating any potential impact on our pricing,” a spokesperson said.
Potential early tariff impacts. A new Z refresh cycle. And momentum in the Red Hat division and newly acquired HashiCorp one.
These are just some of the subjects expected to come up when IBM reports first quarter earnings for its 2025 fiscal year Wednesday. The quarter covers the three months ended March 31.
One of the most likely subjects of discussion Wednesday is the behavior of IBM customers amid global tariffs. Analysts will likely come with questions on whether IBM customers are getting orders in early to avoid potential price increases in the future–or whether customers already see tariffs and the economy affecting their businesses and are now seeking to pause IT and digital transformation projects, perhaps looking to rely on technology they have already purchased.
An IBM spokesperson recently told CRN that the vendor “expects no impact on product availability” due to global tariffs. The vendor is “reviewing the implications of these shifts in trade policy and evaluating any potential impact on our pricing.”
[RELATED: Networking Vendors, Solution Providers Navigate Uncertainty In New Tariff Landscape]
IBM Q1 Earnings
IBM’s 2025 channel goals include adding more qualified partners and increasing the overall percentage of company revenue that comes through the channel, accordingto CRN’s Channel Chiefs.
At least one investment firm, Melius Research, was bullish on the new IBM Z mainframe cycle, predicting infrastructure growth of 16 percent over the next three quarters.
That comes in below the 21 percent growth seen under the prior z16 cycle, but “if the Infrastructure segment alone turns positive and grows like it did before, it could add a 100bp tailwind to overall constant currency revenue growth in 2025,” according to the firm.
Here’s more of what to look for in IBM’s next quarterly earnings call.
Early Tariffs Impact?
On Wednesday, IBM executives might have new information to share on potential effects on their business from global tariffs–but analysts may also look for signs of tariffs hitting overall enterprise spending and the global economy.
Wednesday’s call could reveal whether businesses are leaning more into new artificial intelligence (AI) technology as a revenue multiplier and expenses saver–or if they are slowing down on AI spending to concentrate on what’s already working.
IBM should fare well in the global tariff environment with about 10 percent of cost of goods sold (COGS) spending on hardware and most manufacturing based in the U.S., according to an April report by Bank of America. The investment firm estimated that about 2 percent of IBM’s manufacturing is in Mexico.
IT Jungle has reported that IBM mainframes and quantum computers are made in New York state, but Power Systems are built in Mexico, exposing them to any current or future Trump administration tariffs, in one example.
Bank of America estimates that IBM might raise prices 2 percent to minimize the effect of tariffs, lower than the 10 percent increase expected for Dell, HP and Apple and 5 percent expected for Hewlett Packard Enterprise (HPE), Nutanix and Pure Storage.
Bank of America expects a 5 percent “demand degradation” for IBM, lower than the 10 percent for Dell, HPE and HP. The firm determined demand degradation off pricing needed to offset tariffs, pricing power, global competition and other factors.
IBM’s demand degradation is in line with the decrease for Pure Storage, Seagate and NetApp. Bank of America predicted larger impacts to Dell, HPE, HP and Apple due to manufacturing presences in China.
Another firm, Melius Research, struck an optimistic tone with regard to the security of IBM’s business as customers digest the current tariff landscape and try to prepare for future movement.
“With 80% of its software revenue recurring and an impending mainframe cycle, IBM is looking like one of the most defensive names in our group as investors maneuver around tariffs, AI disruption in SaaS and other uncertainties across other sectors we cover,” Melius said in a March report.
Z Refresh Cycle, Hardware Competition
Speaking of hardware, IBM is in the early days of a Z refresh cycle, with June 18 set as the date the z17 becomes available. Analysts on Wednesday’s call will likely seek clarification around the supply chain not only for Z, but other IBM products to determine exposure to current and future Trump tariffs.
IBM positions the latest iteration of Z–whose sales and support are often handled by IBM solution providers– as a mainframe for the artificial intelligence era with AI across hardware, software and systems operations, according to a statement Tuesday. z17 brings the ability to use AI assistants and AI agents to developers and IT operations.
“The mainframe category has proven to be resilient and relatively stable within IBM’s loyal install base,” Melius Research said in a March report. “When IBM launched the z16 in 2022, the Infrastructure Segment (22% of sales) turned around and grew 25%, 23% and 7% in constant currency y/y in the first 3 quarters of its availability … the System z portion of Infrastructure grew 77%, 98% and 21% respectively in those same quarters.”
While the Z business is about 10 percent of IBM sales, Z “helps power sales higher for all or parts of transaction processing (TPP, 13% of sales), traditional middleware (over 10% of sales), storage (~4%), Infrastructure Support (8%) and financing (1%)–having an outsized impact on IBM overall,” according to Melius.
Other upcoming hardware news IBM executives will likely want to tout on Wednesday’s call are upcoming fourth quarter availability of its Spyre accelerator, an IBM Z Operation Unite anomaly detection offer slated for May 30 general availability and third quarter availability of the z/OS 3.2 flagship Z operating system.
Elsewhere in hardware, IBM (as well as Dell) has grappled with strong competition in the data management and protection space by the likes of Rubrik, Commvault and Veeam, according to an April report by investment firm William Blair.
IBM, Dell and Hewlett Packard Enterprise (HPE) have faced stiff competition in storage by the likes of Pure Storage, according to the report.
Acquisitions Progress Report: HashiCorp, DataStax
Along with organic software and hardware innovations from within IBM, the vendor’s executives might have new updates for analysts Wednesday on integrating recently acquired companies with offers across the Big Blue portfolio.
IBM closed on its acquisition of Terraform creator HashiCorp in February. When IBM revealed the availability date for the latest Z iteration, it also revealed that Z users will have access to HashiCorp’s secrets management capabilities across hybrid cloud in an early example of IBM integrating the new subsidiary. IBM solution providers have told CRN they see plenty of areas where HashiCorp and IBM subsidiary Red Hat can work well together.
HashiCorp should add more than $750 million in run rate revenues, according to a March report by Melius Research. The firm estimated that IBM can accelerate HashiCorp’s revenue run rate by more than 10 percent to more than $800 million a year.
On Wednesday, IBM will report a full month of HashiCorp contribution, which Melius put at “well over” $50 million of revenue.
IBM announced in February its plan to buy database products creator DataStax, a deal set to close during the second quarter. DataStax should bring a $100 million run rate to IBM
CEO Arvind Krishna might also have a progress update on how 2024 acquisitions StreamSets and Webmethods have boosted IBM’s business and products, not to mention asset performance management (APM) software-as-a-service (SaaS) vendor Prescinto and Kubernetes cost monitoring and optimization software vendor Kubecost.
Melius estimated 2 points software growth contribution over the next two quarters from IBM’s various deals.
Red Hat Momentum
Another IBM secret weapon as the economy appears to turn is its Red Hat division, which has been seeing increased attention by legacy Citrix and VMware customers looking for alternatives amid price changes, Red Hat solution providers have told CRN.
Red Hat operates at a $6.5 billion run rate, more than 10 percent of IBM sales. It “represents the fastest growing business of scale for IBM,” with Red Hat building a reputation for products enabling small AI models for tuning and more cost-effective AI, Melius Research said in a March report.
“The bottom line is that Red Hat is enabling enterprises to use only the data they need and run AI in the form they need to lower costs and enable enterprise applications,” according to Melius.
The Red Hat consulting division has a $4 billion bookings run rate, according to the report. Red Hat Enterprise Linux (RHEL) AI and OpenShift AI help fuel $1 billion in IBM AI software and $4 billion in AI consulting bookings for the vendor.
IBM Consulting
Speaking of consulting, analysts will likely look for more positive news around IBM Consulting–No. 6 on CRN’s 2024 Solution Provider 500–on Wednesday’s call.
The division showed momentum on the prior quarter’s earnings call, growing in the low single digits and contributing about four-fifths of the $5 billion generative AI (GenAI) book of business from inception to date.
In April, IBM closed on the purchase of Snowflake and AI consultancy Hakkoda. The month before, IBM closed on its acquisition of Oracle consultancy AST. Last year, IBM’s consulting-minded purchases included Japan-based Amazon Web Services consultancy Skyarch Networks and Bellevue, Wash.-based Oracle consultancy Accelalpha.
Melius dismissed any concerns around the Trump administration cutting federal consulting contracts having a major effect on IBM Consulting. Federal consulting is at most 2 percent of sales, according to a March report by Melius. IBM’s total federal business is likely less than 5 percent of sales.
