IBM's Q1 2025 Earnings Surpass Expectations, Revenue Up 0.6%

IBM reported better-than-expected earnings and revenue for the first quarter of 2025, maintaining its full-year outlook. The company's adjusted earnings per share came in at $1.60, surpassing the expected $1.40. Revenue reached $145.4 billion, slightly above the anticipated $144 billion. This marks a 0.6% increase in revenue compared to the same period last year. However, net income decreased to $10.6 billion, or $1.12 per share, down from $16.1 billion, or $1.72 per share, in the previous year. IBM's Chief Financial Officer, Jim Kavanaugh, highlighted the company's accelerated efforts to improve productivity during a call with analysts.

Ask Aime: What does IBM's Q1 earnings report say about the company's financial health and future outlook?

IBM reaffirmed its expectation for free cash flow of $135 billion for 2025, with revenue growth projected at 5% on a constant currency basis. The current exchange rate is expected to contribute 150 basis points to this growth, slightly lower than the 200 basis points predicted in January. The management forecasted second-quarter revenue to be between $164 billion and $167.5 billion, with the midpoint at $165.8 billion, exceeding the expected $163.3 billion. Kavanaugh noted a more cautious outlook for the consulting business during the call.

IBM's CEO, Arvind Krishna, emphasized the company's strategic focus on hybrid cloud and artificial intelligence, which has driven its success despite the rapidly changing market conditions. He also expressed appreciation for the government's focus on economic growth and reasonable regulation, which he believes will enhance the U.S.'s competitive position and create long-term value. Krishna acknowledged that short-term uncertainties might cause clients to pause and adopt a wait-and-see approach, but he noted that purchasing behavior has not significantly changed so far this quarter.

In the first quarter, IBM's software revenue, including Red Hat, grew by 7% to $63.4 billion, meeting analyst expectations. The hybrid cloud software category, which includes Red Hat, saw a 12% increase, down from the previous quarter's 16%. The consulting division contributed $50.7 billion in revenue, a 2% decrease but slightly above expectations. The infrastructure division, including mainframes, saw a 6% decline in revenue to $28.9 billion, exceeding the expected $27.6 billion. ibm recently launched its z17 mainframe, which is expected to accelerate infrastructure revenue growth as customers adopt the next-generation device.

IBM also announced a settlement with chip manufacturer GlobalFoundries and completed the acquisition of cloud software maker HashiCorp for $64 billion. Additionally, the company plans to acquire data storage software startup DataStax, with terms not yet disclosed. These strategic moves are part of IBM's ongoing efforts to strengthen its position in the market and drive future growth.