IBM Corp. reported its highest annual revenue growth in a decade on Wednesday (Jan. 25), beating Wall Street’s fourth-quarter expectations as more companies looked to optimize operations and cut costs amid an economic downturn.
The IT software and consulting company also forecasts annual revenue growth in the mid-single digits at constant currency, weaker than the 12 percent it reported for 2022, but in line with its mid-term goals announced in 2021.
Analysts have expressed concern if IBM could deliver on that given the turbulent macroeconomic backdrop.
Big Blue’s forecast for slower growth comes after a boom during the pandemic, as companies spent money digitizing their operations. Now, rising borrowing costs and recession fears are forcing companies to tighten spending.
IBM signaled weakness in new bookings in Western Europe in October, while industry peer Accenture Plc also noted weakness in its consulting business. Cognizant Technology Solutions Corp. lowered its 2022 forecast in November due to a downturn in contracts.
Still, IBM Chief Financial Officer James Kavanaugh told Reuters on Wednesday that the company sees its consulting business grow in terms of cloud spending. Deal signings doubled in 2022 for setting up services with hyperscaler partners such as Amazon.com’s AWS and Microsoft’s Azure, he said.
“I can’t stress that enough… enterprise customers are looking to better optimize their application portfolio and usage requirements.”
Analysts also expect digitization and cloud-related contracts to remain more resilient than other IT projects.
IBM’s annual revenue grew 5.5 percent to $60.53 billion thanks to its shift to its so-called “hybrid cloud” strategy, in which the company helps customers set up their own data centers and use leased computing resources.
Hybrid cloud revenue increased 2 percent to $6.3 billion in the reported quarter.
The 110-year-old company, which generates more than half of its sales outside the United States, said it expects a neutral currency impact on its business this year as the US dollar weakens. It posted a forex hit of over $1 billion in the fourth quarter.
Total revenue growth was flat at $16.69 billion in the quarter ended Dec. 31, compared to analyst estimates of $16.40 billion, according to data from Refinitiv.