Technology and consulting giant IBM (NYSE:IBM) reported Q1 CY2025 results beating Wall Street’s revenue expectations , but sales were flat year on year at $14.54 billion. The company expects next quarter’s revenue to be around $16.56 billion, close to analysts’ estimates. Its non-GAAP profit of $1.60 per share was 12% above analysts’ consensus estimates.
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Revenue: $14.54 billion vs analyst estimates of $14.39 billion (flat year on year, 1% beat)
Adjusted EPS: $1.60 vs analyst estimates of $1.43 (12% beat)
Adjusted EBITDA: $3.18 billion vs analyst estimates of $2.81 billion (21.9% margin, 13.1% beat)
Revenue Guidance for Q2 CY2025 is $16.56 billion at the midpoint, roughly in line with what analysts were expecting
Operating Margin: 10%, up from 8.2% in the same quarter last year
Free Cash Flow Margin: 13.5%, similar to the same quarter last year
Market Capitalization: $211.4 billion
IBM’s first quarter results were shaped by the company’s ongoing focus on hybrid cloud and artificial intelligence solutions, with management highlighting broad-based strength in its software segment—particularly in automation, Red Hat, and data products. CEO Arvind Krishna specifically attributed the quarter’s performance to IBM’s ability to address clients’ cost-saving and productivity needs, emphasizing strong demand for generative AI and hybrid cloud offerings. Krishna also pointed to the company’s history of delivering mission-critical solutions and its trusted relationships with enterprise clients as central to IBM’s resilience amid shifting market conditions.
Looking ahead, management stated that IBM’s full-year growth outlook remains intact, supported by continued momentum in software, new product launches like the z17 mainframe, and recent acquisitions such as HashiCorp. While the company maintained its revenue and free cash flow targets, CFO Jim Kavanaugh noted a more cautious stance on consulting services due to macroeconomic uncertainty and potential discretionary pullbacks. Krishna affirmed, “We are maintaining our full-year guidance for accelerating revenue growth to 5% plus, and above $13.5 billion of free cash flow.”
IBM’s management emphasized the role of its software portfolio and productivity initiatives as key drivers of the quarter’s results, while acknowledging ongoing macroeconomic uncertainty and segment-specific trends.
Software Segment Momentum: Growth in software was led by automation, Red Hat, and data products, with Red Hat OpenShift annual recurring revenue now at $1.5 billion and strong double-digit growth across several sub-segments. Management noted that approximately 80% of software revenue is recurring, providing stability.
Generative AI Adoption: The company reported a generative AI book of business exceeding $6 billion, with about 20% from software and the remainder from consulting. Management described early enterprise adoption, particularly as clients seek to realize productivity gains and cost savings through AI-enabled solutions.
Productivity and Cost Discipline: IBM achieved margin expansion and improved free cash flow by embedding AI and automation into more than 70 internal workflows—ranging from HR to finance—and reducing vendor spend by over $1 billion through supply chain optimization.
Infrastructure Cycle Dynamics: The infrastructure segment declined due to the conclusion of the z16 mainframe cycle, but management expects the newly launched z17 to drive renewed growth, citing client interest in enhanced AI acceleration and security features.
Consulting Segment Variability: Consulting revenue was flat, with management attributing this to delayed decision-making and discretionary project pullbacks, especially in federal and government-related contracts. IBM remains cautious on the outlook for consulting due to its sensitivity to macroeconomic factors.
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