IBM Corp announced 3,900 layoffs as part of asset divestments on Wednesday, and missed its annual cash target, dampening optimism about exceeding revenue estimates in the fourth quarter.
Chief Financial Officer James Kavanaugh told Reuters that the corporation was still “dedicated to hiring for client-facing research and development”.
The layoffs will result in a $300 million charge in the January-March period, according to IBM, and are connected to the separation of its Kyndryl (KD.N) business and a portion of AI unit Watson Health.
In extended trade, the company’s shares sank 2%, wiping out earlier gains on mainly positive results. Analysts believe the dip was caused by reports of job layoffs and a shortfall in free cash flow.
“It seems as if the market is disappointed by the size of its announced job cuts, which only amounted to 1.5% of its workforce,” said Jesse Cohen, senior analyst at Investing.com.
“Investors were hoping for deeper cost-cutting measures.”
From Big Tech to Wall Street banking titans, American corporations have been aggressively downsizing and cutting expenses to better deal with the global economic crisis.
BM’s cash flow in 2022 was $9.3 billion, less than its forecast of $10 billion
IBM’s cash flow in 2022 was $9.3 billion, less than its forecast of $10 billion, due to higher-than-expected working capital requirements.
In addition, the company expects yearly revenue growth in the mid-single digits in constant currency terms, down from the 12% recorded last year, as pandemic-driven demand for digitizing enterprises has given way to cautious expenditure by clients amid mounting recession fears.
IBM reported slowness in new bookings in Western Europe in October, while partner Accenture Plc reported weakness in its consultancy sector. Cognizant Technology Solutions Corp (CTSH.O) lowered its 2022 projection in November owing to a contract withdrawal.
The fourth-quarter growth of IBM’s software and consulting businesses declined sequentially, but cloud expenditure was a bright spot, with deal signings doubling in 2022 for setting up services with partners such as Amazon.com’s (AMZN.O) AWS and Microsoft’s (MSFT.O) Azure.
Its hybrid cloud sales increased by 2% in the fiscal quarter ending December 31.
According to Refinitiv, total revenue remained steady at $16.69 billion in the period, compared to analysts’ projections of $16.40 billion.
IBM reported 5.5% revenue growth in 2022, the strongest in a decade.
