Rising labor and component costs lead to UK product and service price hike at IBM

Big Blue looks back at 2022 in Britain, one of the world's economies 'hit hardest' by pandemic

Products and services price hikes were initiated by IBM UK in 2022 to offset rising labor and component costs, the company has said in its latest set of profit and loss accounts.

Turnover for the tech biz in the calendar year rose 14.5 percent to £3.123 billion ($2.98 billion), according to a filing with Companies House. This included marginal increases in the hardware and software operating divisions and a 17 percent jump in services.

This was a decent showing for Big Blue in what it described as a local marketplace still dealing with the fallout from Covid-19. "The UK's economy was one of the hardest hit by the pandemic however the overall demand for services, software and systems continues to remain strong."

IBM CEO Arvind Krishna, pictured in 2009 when he was a manager

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One of the challenges facing IBM was a spike in the cost of bringing new workers on board.

"Throughout 2022, the company experienced escalating labor and component costs. Across all of the product-based businesses, the company has now executed price increases above the historial level of increases to be more reflective of the labour and component costs that the company is incurring due to the inflationary environment.

"This includes price increases in maintenance and support agreements for the hardware and software portfolios," IBM's report added.

Oracle, SAP, and others have also upped the cost of support contracts in echoes of the doom loop that has been the cost of living crisis. And hardware makers raised their list prices as the cost of DRAM and other tech ingredients went up themselves.

IBM has been on something of a shape-shifting exercise, expunging its managed infrastructure services by spinning it out into a new publicly listed entity called Kyndryl, as such the profile and size of the UK workforce shrank last year.

The main focus for Big Blue these days, as Reg readers know, is hybrid cloud computing and AI, along with its fragmented software portfolio and the legacy – but still at times highly profitable – mainframe portfolio.

To try to be relevant and in touch with customers, IBM last year set up a Client Advisory Council including CIO, CTOs and others with responsibility for buying decisions at some "major companies and organisations from the UK and Ireland." IBM wants to know how it and rivals are stacking up.

"Council members are invited to bring a 'burning question' to the table related to AI, Cloud, Quantum's Digital Transformation and more, with a view to discussing this amongst a small network of C-Suite peers in a supportive, conversational and confidential collegiate setting," IBM says in the financial report.

One thing IBM itself could ask of Watsonx, its AI and data platform, is how to increase profits for 2023 and beyond. Last year, IBM recorded a dip in gross margin to 6.9 percent and a near 64 percent drop in profit before tax.

The reduced profit was caused by an impairment reversal on investments in 2021 and lower margins in the infrastructure segment.

Headcount, on average, was 7,660 for the year, compared to 7,658 in the prior year, but this does not include the 1,234 people that transferred to Kyndryl. ®

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