(Bloomberg) – International Business Machines Inc. posted its biggest intraday gain in more than 20 years after the company gave a positive outlook for 2024 earnings and cash flow despite expected job cuts. It became.
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Free cash flow for the year ending December will be approximately $12 billion, the company said in a statement Wednesday. Analysts' average estimate was $10.9 billion, according to data compiled by Bloomberg. Sales will increase by “mid-single digits,” the company said. Analysts had expected sales to rise about 3%.
In recent years, IBM has focused on streamlining its operations around software and services, selling off its management infrastructure, weather and health businesses. The Armonk, New York-based company said it will reduce the percentage of low-single-digit positions again this year. And IBM has introduced new products to capitalize on the growing interest in artificial intelligence.
Chief Executive Officer Arvind Krishna mentioned the company's AI platform in a statement, saying, “Customer demand for AI is accelerating, and our results for Watsonx and Generative AI are expected to increase from the third quarter to the third quarter. It nearly doubled in the fourth quarter.”
Shares rose as much as 13% to $196.90 in New York on Thursday, the biggest intraday gain since January 2001 and the stock's highest since June 2013.
“Big Blue is back,” said Evercore ISI analyst Amit Daryanani, emphasizing that the full-year outlook is better than expected. “Our sense is that IBM remains an underappreciated beneficiary of AI and should continue to do more in the coming years.”
IBM's job cuts plan follows similar announcements in January by major tech companies including Alphabet Inc.'s Google and Amazon.com Inc. Chief Financial Officer James Kavanaugh said IBM will likely spend $400 million on restructuring, the same amount as last year. —When we reduced our workforce by approximately 3,900 people. However, he said the company is continuing to hire for certain positions and expects headcount to be about the same at the end of the year. IBM had approximately 288,000 employees at the end of 2023.
“We expect many of the macro trends to be similar to 2023” next year, Krishna said in a conference call after the results were announced. “Every client I talk to is asking how they can improve their productivity and manage their technology stack with AI.”
Bloomberg Intelligence's Anurag Rana wrote that the cash flow outlook “suggests improved operational efficiency and stable organic growth.” He said: “We expect IT spending to accelerate further into the second half of the year, which could lead to steady improvement in consulting growth.”
Fourth-quarter sales increased 4.1% to $17.4 billion. Earnings, excluding certain items, were $3.87 per share. Analysts on average expected sales of $17.3 billion and adjusted earnings per share of $3.76.
Consulting revenue rose 6% to $5.0 billion, slightly missing analysts' expectations of $5.1 billion. Investors have focused on weakness in this business sector in recent quarters as economic uncertainty weighs on customer appetite for large projects.
Software also came in slightly below expectations, coming in at $7.5 billion for the quarter ended Dec. 31, compared to expectations of $7.7 billion. Red Hat, the software division that IBM acquired in 2019, posted 8% revenue growth, which was also relatively slow for a company that once regularly posted quarterly growth of more than 20%. It's a great time.
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