International Business Machines Corp. (IBM) has announced 3,900 layoffs as part of some asset divestments and missed its annual cash target, dampening cheer around beating revenue expectations in the fourth quarter.
According to the company’s Chief Financial Officer, James Kavanaugh, the cuts will focus on workers remaining after spinning off the Kyndryl and Watson Health units and will cost the company about $300 million.
Shares of the company fell 2% in extended trading, erasing earlier gains on the largely upbeat results. Analysts said news of the job cuts and free cash flow miss was behind the drop. “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 were hoping for deeper cost-cutting measures.” He added.
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The jobs cut announcement by IBM came on the heels of the release of its Q4 2022 financial results. The company’s Q4 revenue was unchanged at $16.7 billion.
Hybrid cloud revenue was $22.4 billion in 2022, up 11% from a year earlier. Sales in the software unit increased 2.8% to $7.29 billion, while infrastructure was up 1.6% to $4.48 billion. In its forecast, IBM said free cash flow in fiscal 2023 is expected to be $10.5 billion while revenue will increase in the mid-single digits.
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Global tech companies have seen a slowdown in investment as concerns about the economy and a potential recession persist, resulting in a wave of recent layoffs. Microsoft Corp., which also announced job cuts, reported its slowest sales growth in more than six years in the most recent quarter, as demand for its software and cloud services declined.
In October, IBM flagged softness in new bookings in Western Europe, while peer Accenture Plc noted weakness in its consulting business. In November, Cognizant Technology Solutions Corp (CTSH.O) (CTSH.O) cut its 2022 forecast due to a pullback in contracts.
IBM’s software and consulting business growth slowed down sequentially in the fourth quarter, but cloud spending was a bright spot, with deal signings doubling in 2022 for setting up services with partners such as Amazon.com’s (AMZN.O) AWS and Microsoft’s (MSFT.O) Azure.
Its hybrid cloud revenue rose 2% in the quarter that ended Dec. 31.
Total revenue was flat at $16.69 billion in the period, compared with analysts’ estimates of $16.40 billion, according to Refinitiv.
For 2022, IBM recorded revenue growth of 5.5%, its highest in a decade.