IBM’s shares fell nearly 9% during after-hours trading due to a lackluster performance from its consulting unit. This unit is significant for IBM, and the revenue downturn has ramped up pressure on the company’s strategic planning.
The dampened results somewhat overshadowed IBM’s recent announcement of their $6.4 billion acquisition of software company HashiCorp Inc, a strategic attempt to beef up their cloud services against competitors like Microsoft and Amazon. Despite this, whether or not the performance of IBM shares will improve due to this acquisition remains uncertain.
Despite a modest 1% sales increase in Q1, and a 1.5% increase in sales in Q2, IBM has managed to maintain its projected $12 billion in free cash flow for the current fiscal year.
IBM consulting slump triggers share drop
Even with the minor slump, executives plan to boost growth by continued investment in key sectors, namely cloud computing and AI.
Under CEO Arvind Krishna’s leadership, IBM has shifted from a hardware-focused firm to a more software-oriented one, downsizing its operations in managed infrastructure, weather, and health sectors. Investments in cloud, AI, quantum computing and cybersecurity signify IBM’s intentions for the future.
Throughout this year, IBM’s stock price has risen by 13%, surpassing the 6.2% rise in the S&P 500 Information Technology Sector Index. This strong position in the market reflects positively on IBM’s performance.
IBM CFO Jim Kavanaugh expressed that the acquisition of HashiCorp is following the “Red Hat playbook,” aiming to roll out new products to its global customer base. He also predicted that this strategic move will rapidly enhance revenues and boost HashiCorp’s free cash flow margin to a notable 30% to 40% as an IBM subsidiary.
