IBM earnings: Slow growth and poor guidance

• Revenue for the past quarter amounted to $16.33 billion, representing an increase of over 9% year-over-year and a clear beat of the consensus set around $16.1 billion.
• The infrastructure segment deserves special mention, growing by as much as 17%, demonstrating the resilience of traditional business lines.
• Consulting performed much more modestly, with growth reaching only 3.3%.
• The company also met expectations for an operating margin of 58.7%, and adjusted earnings per share rose to $2.65, surpassing forecasts.
• Free cash flow grew to $2.37 billion, marking a 15% improvement compared to the same period last year.

So why the weak reaction?
The market was particularly disappointed with the growth rate in software and consulting, areas that investors view as natural fields for expansion and higher margin creation in the coming years.
Additionally, attention was drawn to a subtle but significant change in the wording of the management's commentary.

This year's revenue growth was described as "at least 5%" instead of the previous "over 5%."
This phrasing was interpreted as a de facto lowering of forecasts and increased concerns that revenue growth might not accelerate as previously expected.
Most investment banks maintain their recommendations at moderately positive levels. At the same time, analysts are increasingly signaling concern over the weak growth rate in key segments.
IBM remains a company with powerful assets, a broad technology portfolio, and a recognizable brand.

However, the aging corporation is increasingly struggling with the demands of today's highly dynamic and aggressive market, where investors expect consistent acceleration, especially in software and services segments.
Without clear evidence of sustained growth acceleration in these areas, each subsequent consensus beat may not be enough to reverse the negative narrative surrounding the company.