IBM talks up AI and hybrid cloud on back of 'solid' Q2

Infrastructure business another high point with 19 percent revenue bump to $4.2 billion

IBM sees a strong future for AI and is investing heavily in both the technology and automation to drive it. Hybrid cloud is another key area for the company as it continues to capitalize on its Red Hat assets.

Chairman and CEO Arvind Krishna claimed that IBM was executing well on its hybrid cloud and AI strategy during the Q2 2022 earnings call on Monday, noting IBM made key changes to its portfolio and focused investments on technical talent, the ecosystem, and its go-to-market model.

According to Krishna, about 35 percent of companies are now using some form of AI in their business, and many of these are using AI and automation to address demographic shifts and move employees to higher-value work.

"This is one of the many reasons we are investing heavily in both AI and automation. These investments are paying off," he said.

Not all have paid off, however. The company offloaded its ailing IBM Watson Health business to a private equity buyer earlier this year.

But IBM beat its estimates for this quarter, bringing in $15.5 billion in revenue, up 9 percent year-on-year. The company said it was confident it would be able to deliver full-year revenue growth for 2022 towards the high end of its mid-single-digit prediction.

However, senior VP and chief financial officer Jim Kavanaugh warned that the increasingly strong US dollar was having an impact on companies like IBM that do business all around the world.

"Given the focus on the sharply strengthening dollar, I'll mention that currency translation impacted our reported revenue by over six points of growth or $900 million. That's over $200 million more than the spot rates would have suggested 90 days ago," he said.

One of the high points of the results was IBM's Infrastructure business, which saw revenue increase by 19 percent to $4.2 billion. Contained within this is the Z systems mainframe division, which enjoyed a revenue spike of 69 percent thanks to the launch of the new z16 earlier in the quarter.

The z16 introduced new capabilities including on-chip AI inference capabilities that Big Blue claimed allow banks and other financial services outfits to run fraud detection checks against all transactions.

According to Kavanaugh, IBM's software revenue grew 12 percent during the quarter, driven by the company's hybrid cloud and AI capabilities. "Hybrid cloud revenue for the segment now represents $9 billion over the last year, up 23 percent," he said. For the quarter, hybrid cloud revenue was up 14 percent.

Within the overall software figure, IBM's Red Hat subsidiary saw its revenue grow 12 percent, fueled by both new adoption and expansion of Red Hat Enterprise Linux and the OpenShift application platform.

These key offerings address hybrid cloud requirements in industries like financial services, public sector, and telecommunications, across environments and out to the edge, Kavanaugh said. In particular, OpenShift allows containerized workloads to be moved from between on-premises and public cloud environments if required.

IBM's consulting business saw revenues up 9.8 percent to $4.8 billion, which also received a significant contribution from Red Hat, according to Kavanaugh. "We nearly doubled our Red Hat consulting revenue in the quarter and continued solid Red Hat bookings, which now exceeds $6 billion inception to date," he said.

Strategic partnerships also contributed to IBM's consulting performance, with revenue from these partnerships growing by "solid double digits" led by Azure, AWS, SAP, and Salesforce.

IBM is now a different company from what it once was, Kavanaugh claimed – more focused and faster-growing. "And while there is always more work to do, we are confident in our ability to deliver sustainable growth. Our first-half results were solid." ®

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