The Zhitong Finance App learned that IBM (IBM.US) disappointed investors due to weak sales in the consulting department and fell about 9% in after-hours trading, casting a shadow over the transaction of the software company HashiCorp (HCP.US) it acquired.
IBM's first-quarter sales increased 1% year over year to $14.5 billion, the company said in a statement on Wednesday. IBM also reiterated its previous forecast that free cash flow would reach $12 billion in the fiscal year ending December.
Additionally, IBM announced that it has agreed to acquire HashiCorp at a corporate value of US$6.4 billion, which mainly sells software that helps companies manage cloud computing operations. This is the biggest acquisition since IBM bought software company RedHat for $31.8 billion in 2019.
The deal is another move by IBM CEO Arvind Krishna to transform a traditional technology hardware company into a high-growth software and services company. Big Blue has made other acquisitions in this area, such as buying Apptio for $4.6 billion last year and divesting hosting infrastructure, weather, and health businesses.
“HashiCorp has a proven track record of helping customers manage today's complex infrastructure and applications,” Krishna said in a statement. “Combining IBM's product portfolio and expertise with HashiCorp's capabilities and talent will create a comprehensive hybrid cloud platform designed for the age of artificial intelligence.”
After closing at $184.10 in New York, the stock fell to a low of $166.51 in after-hours trading. Since this year, the stock has accumulated a cumulative increase of 13%, surpassing the 6.2% increase in the S&P 500 Information Technology Sector Index.
IBM Chief Financial Officer Jim Kavanaugh (Jim Kavanaugh) said in an interview that by acquiring HashiCorp, IBM will push Red Hat products to its customers around the world, thereby running the “Red Hat Game Book.” He added that the deal will increase profit before interest, tax, depreciation and amortization (EBITDA) within the first year, and HashiCorp's free cash flow margin will climb to 30% to 40% as part of IBM.
Krishna said in a statement that since mid-2023, IBM has surpassed $1 billion in bookings for products and consulting focused on artificial intelligence. Roughly two-thirds of this figure is consulting business, and the majority will be recognized as revenue in 2025.
Investors have been watching for a possible decline in IBM's second-largest business consulting division. As of March 31, the division's revenue was 5.2 billion US dollars, the same as the same period last year.
Anurag Rana (Anurag Rana), a senior analyst at Bloomberg Intelligence, wrote that the consulting business's performance reflected “weak IT spending.” Kavanaugh said that due to the uncertain economic environment, customers continued to tighten their expenses.
RedHat's sales grew 9%, another relatively slow period for the company, which used to jump more than 20% every quarter. Excluding some items, the company earned $1.68 per share.
HashiCorp's sales for the most recent fiscal year ending in January of this year increased 22% to $583 million. Jason Ader (Jason Ader), an analyst at William Blair (William Blair), wrote, “The company recently struggled due to a slowdown in sales execution and cloud migration.” “As part of IBM, HashiCorp will benefit from more standardized sales methods and better tool bundling capabilities, thereby increasing the value of paid subscriptions.”