Dive Brief:

• IBM became the latest technology giant to announce it would be paring down its workforce, with the company beating revenue expectations but missing its annual cash flow target, according to its Wednesday Q4 2022 earnings report. The move comes as the technology sector faces continued economic headwinds.
• The Armonk, NY-based company will be laying off 1.5% of its global workforce or approximately 3,900 employees, a company spokesperson confirmed to CFO Dive.  
• The reduction is not due to either IBM’s 2022 performance or 2023 expectations, the spokesperson said, and is “entirely related” to the previous spinoff and sale of two of its business units, including a healthcare divestiture and IBM’s separation from Kyndryl.

Dive Insight:

IBM is the latest large-scale technology company to pare down its workforce, a move that follows similar actions by fellow tech and software firms including Microsoft and Google parent Alphabet, as well as Salesforce as they look to position themselves to weather ongoing economic headwinds, according to previous reports by CNBC and CFO Dive, respectively.

European software firm SAP SE also announced Wednesday that it would be slashing its global workforce by 3,000 employees after a decline in profit due to the slumping economy, with the hopes of allowing for “further focus on strategic growth,” SAP CFO Luka Mucic said Thursday, according to a report by the Wall Street Journal.

IBM anticipates it will see a charge of approximately $300 million in the first quarter of 2023 relating to “stranded costs” in the business, CFO James Kavanaugh said Wednesday during the company’s earnings call. The cost appears to relate to its job cuts, as reported by Bloomberg.

IBM completed its separation from Kyndryl, a managed infrastructure service business, in November 2021 according to a company press release. The technology firm is also in the process of selling healthcare data and analytics assets to investment firm Francisco Partners. The assets were part of its Watson Health business. The two parties inked an acquisition agreement for the sale last January, according to an IBM press release.

The technology company reported flat fourth quarter revenue of $16.7 billion, according to its earnings results, while full-year revenue grew 6% year-over-year to $60.5 billion. It also reported free cash flow of $9.3 billion for the full year, down from the $10 billion to $10.5 billion it had forecast for full-year 2022 during its Q1 2022 earnings report in April.

Kavanaugh pointed to the strength of the dollar and the company’s exit from Russia in light of the war in Ukraine as some of the external factors impacting IBM’s quarterly financials on the Wednesday call. Kavanuagh said the company is “operating in a highly inflationary environment,” which puts pressure on its margins, especially in consulting.

However, the company is “pleased by the fundamentals of the business” and expects to see growth in both revenue and free cash flow in 2023, he said.

The firm also once again reported strong revenue for its Red Hat business, which increased by 15% in the quarter, due particularly to “double digit” expansion and increasing market share for its OpenShift and Ansible tools, Kavanaugh said during the Wednesday call. The finance chief highlighted Red Hat as a significant contributor to the firm’s revenue growth for the quarter.

“We continue to see acceleration of consulting being the tip of the spear that's really driving the scale and adoption of our hybrid cloud platform,” he said Wednesday of Red Hat’s continued growth.