International Business Machines’ (IBM.N), opens new tab) shares dropped more than 9% on Thursday as businesses cutting back on spending to deal with the unstable economy and rising interest rates are putting pressure on the consulting division.
The consultancy division suffered from a decline in smaller discretionary projects, but J.P. Morgan analysts predicted that the backlog will help the company pick up speed through 2024.
“Although software acceleration is encouraging, this was offset by more significant-than-expected deterioration of Consulting, along with incremental FX headwinds expected for the rest of the year,” stated the analysts at J.P.Morgan.
In order to capitalize on an AI-driven surge in demand for the cloud’s data storage capabilities, IBM announced a $6.4 billion deal to acquire cloud software provider HashiCorp (HCP.O), opens new tab. IBM’s software division increased 5.5% in the quarter.
BofA Securities analysts stated that IBM may increase HashiCorp’s revenue, which has been decreasing, and provide cost synergies. According to LSEG, its reported total revenue was $14.46 billion, which was less than the estimated $14.55 billion. Sales in its consultancy division were flat.
On Thursday, the company’s shares were down 9.3% at $166.98. Its market worth is expected to drop by more than $15 billion if losses continue.
Evercore analysts said, “This was a noisy quarter driven by consulting slowdown offset by hardware growth.”
“Focus now will be on how does IBM execute on revenue acceleration across both consulting and software segments.”
