Published - January 26, 2023 @ 3:10 PM (EET)

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On Wednesday, International Business Machines Corp. (NYSE:IBM) delivered an upbeat annual sales forecast while joining the wave of companies making layoffs, saying it would eliminate 3,900 employees from its workforce.

According to its latest annual report, the layoffs would amount to a 1.4% reduction from its headcount of 280,000. The New York-based company said the cuts would focus on workers remaining after spinning off the Kyndryl and Watson Health Units.

Elsewhere, driven by higher-than-expected growth in the company's software and infrastructure segments, IMB also reported quarterly revenue growth that topped analyst estimates. 

For the fourth quarter that ended 31 December, net income came in at $2.71 billion, or $2.96 a share, compared with $2.33 billion, or $2.57 a share, a year earlier. Revenue was unchanged at $16.7 billion, the company said in a statement.

ANNUAL FORECAST

In fiscal 2023, IBM said it expects free cash flow to be $10.5 billion while revenue will grow in the mid-single digits. According to Bloomberg data, analysts estimated an average of $9.18 billion in free cash flow and an annual sales growth of 1.2%.

Starting 1 January, the company is also strengthening the valuable life of servers and networking equipment, which will boost pre-tax income by over $200 million, IBM's finance chief, Jim Kavanaugh, said.

Following the results, Bloomberg Intelligence analyst, Anurag Rana, said the outlook "signals steady demand for its consulting and software products."

During the quarter, IBM announced a next-generation quantum computer, the acquisition of a handful of other consulting companies, and a plan to invest $20 billion in New York's Hudson Valley area over the next ten years.

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NOW WHAT

In 2022, IBM outperformed its tech peers, rising 11% last year, and was one of the only two US tech companies valued at $50 billion or more to notch gains.

However, IBM shares fell over 2% in premarket trading on Thursday as analysts remained cautious about the IT giant's future in light of its results and 2023 guidance, noting that operating margins and free cash flow missed expectations.

Morgan Stanely analyst Erik Woodring, who has an equal-weight rating, noted that for IBM to meet its target of $35 billion in free cash flow for 2022 to 2024, it would have to grow 40% year-over-year in 2022.

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