IBM's second quarter was a mixed bag with software, Red Hat, data and AI and consulting growth but headwinds as hardware sales stumbled as IBM z Systems revenue fell 30%.

The company reported second quarter net income of $1.6 billion, or $1.72 a share, on revenue of $15.5 billion. Non-GAAP earnings for the second quarter were $2.18 a share.

Wall Street was looking for second quarter earnings of $2.01 a share on revenue of $15.58 billion.

IBM CEO Arvind Krishna said the company was confident with its annual outlook and that it saw strength in hybrid cloud and AI technologies.

For 2023, IBM is projecting revenue growth of 3% to 5% with free cash flow of about $10.5 billion. 

By the numbers:

  • Software revenue in the second quarter was $6.6 billion, up 7.2% from a year ago. Red Hat revenue was up 11%, data and AI sales were up 10% with security and automation falling slightly.
  • Consulting revenue was $5 billion, up 4.3%.
  • Infrastructure revenue was $3.6 billion, down 14.6%. Hybrid infrastructure fell 18% from a year ago and IBM z Systems sales fell 30%.

On a conference call with analysts, Krishna said:

  • "AI will infuse in models every single product we have, whether it's sustainability, whether it's our database products, whether it's our consulting projects, whether it's inside the mainframe of the Telum.
  • "Businesses around the world are excited about tapping foundation models and machine learning in one place, with their own data to accelerate generative AI workloads. For example, Samsung is exploring generative AI to deliver unprecedented innovation for clients. Citi is pursuing the potential use of large language models for connecting controls to internal processes. NatWest is embedding watsonx into its chatbot to improve customer experience and SAP is integrating IBM Watson AI into their solutions."

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