IBM finally shows some growth in sales and profits

August 1, 2022

Timothy Pricket Morgan

We’ve been so excited about our coverage of the new Power10 entry-level and midrange servers over the past few weeks that we haven’t touched on Big Blue’s financial results for the second quarter ended June. Given the last few years and all the bad news on the financial front of bug players like Intel, Amazon, Microsoft and Google, it’s probably a good thing that our IBM analysis comes a week later because we now have a better perspective of how IBM is doing compared to its peers.

It’s a refreshing change to see IBM do better, but only God knows how sustainable IBM’s growth trajectory is. We will have to take it one quarter at a time, as all individuals and businesses must do in the current economic climate.

In the June quarter, IBM’s sales rose 9.3% to $15.54 billion, gross profit rose only 5.6% to $8.29 billion, but thanks to accounting wonders, Big Blue was able to increase net income by 1.7X to $1.39 billion in the quarter. .

Sales of the “Telum” System z16 family of mainframes launched earlier this year got off to a strong start in the second quarter, with revenues up 69% as shown and 77% when counted in all their local currencies. Distributed infrastructure, which is IBM’s new way of talking about Power Systems machines and storage of all kinds, saw an 11% increase in sales, or a 17% increase at constant currency. IBM didn’t give specific numbers for Power Systems but gave the impression that much of this increase was due to storage sales related to the new System z16 iron, but we also believe that high-end sales Power E1080 contributed to this increase. We also believe that sales of entry-level and mid-range Power Systems were most likely lean, with everyone and their dogs knowing that the entry-level and mid-range Power10 machines would arrive in July. The Power10 cycle – whatever it is – really kicks off starting this month, when customers and resellers have digested the announcements and returned from vacation ready to upgrade platforms.

IBM’s entire Infrastructure group, which includes systems, storage, operating systems (minus Red Hat) and technical support, had sales of $4.24 billion, up one year. just under 19%, and made a gross profit of 53.8% of revenue, or $2.28. billion, up 12.1%. Pretax profit was $757 million, significantly higher than the $489 million posted in the year-ago quarter.

Based on IBM’s constant currency statements and our modeling, IBM’s hybrid infrastructure – that is, all of the hardware and operating systems – accounted for $2.77 billion in sales, up 34.3%, and infrastructure support accounted for $1.47 billion in sales, down 2.1%.

Sales of Red Hat operating systems and middleware support licenses (there is no licensing for software like IBM’s proprietary systems software) increased 12.1% to 1.47 billion dollars, representing a slowdown in growth that IBM probably did not anticipate. Big Blue likes something closer to 20% growth with Red Hat.

IBM’s software group posted revenue of $6.17 billion, up just 3.2%, but posted gross profit of $4.88 billion and pretax income of $1.38 billion, which is still pretty healthy by any modern metric. The Hybrid Platforms and Solutions division saw flat sales at $4.4 billion, but if you take Red Hat out of that segment, the rest of that systems software stack — various types of middleware not including databases — went down. recorded a drop in sales of 4.8%, to $2.93 billion. IBM’s Transaction Processing segment reported revenue of $1.77 billion, up 11.6% year-over-year.

According to our model, IBM’s overall systems business, including servers, storage, operating systems (including Red Hat), middleware (including Red Hat), technical support and financing, represented a total of $8.2 billion in revenue for the second quarter of 2022, up 11.6%. .

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