Geopolitical events put pressure on IBM earnings

IBM delivered its Q2 2022 earnings last night, posting revenue of $15.5 billion, marking a 9% increase year-on-year at an adjusted gross profit margin of 54.5% for the quarter ending June 30.

However, the current geopolitical landscape is continuing to prove challenging for the technology vendor, as CFO James Kavanaugh told analysts that both currency headwinds and the impact from exiting the Russian market have put pressure on IBM’s outlook.

“With the year-to-year lost business due to the winddown, Russia impacted our profit results by roughly a $100 million,” he said.

The strengthening of the dollar against a number of currencies is also proving difficult for large multinational companies like IBM to weather. Kavanaugh said the company expects a foreign exchange hit to revenue of about 6% this year.

All of this has led IBM to downgrade its full-year free cash flow from the $10 billiion -$10.5 billion it predicted in April, to “about $10 billion.” IBM’s shares slipped by as much as 4% in after-hours trading as a result of the announcement.

Strong departmental growth

Despite these global challenges, growth remained strong across most of IBM’s business units. The company’s consulting division generated $4.8 billion in revenue, an increase of 9.8% year-on-year, while its infrastructure unit, which includes mainframe computers, hybrid infrastructure, and infrastructure support, contributed $4.2 billion in revenue, up almost 19% year on year.

IBM’s software division also performed strongly, posting revenues of $6.2 billion, an increase of 6.4%. Hybrid cloud and transaction processing provided the company with the biggest revenue growth this quarter, posting 14% and 12% growth respectively.

Red Hat, IBM’s open source software subsidiary with a newly appointed president and CEO, also performed well this quarter, increasing its revenue by 12%.