By Anhata Roprai
April 22 (Reuters) – IBM’s revenue growth slowed in the first quarter due to sluggishness in its software business, stoking fears of disruptions from artificial intelligence tools and sending its shares down 6.5% after the close on Wednesday.
Concern that AI will disrupt the software business has increased with the launch of tools that can automate routine corporate functions.
IBM has been especially hard hit after Anthropic said in February that one of its tools could help modernize COBOL, a language widely used on the company’s mainframes.
Big Blue’s revenue rose 9% in the first quarter to $15.92 billion, slower than the 12.2% growth in the previous quarter, even as it beat analysts’ average estimate of $15.62 billion, according to data compiled by LSEG.
IBM’s software segment, anchored by its high-margin hybrid cloud unit Red Hat and a suite of artificial intelligence tools under the Watsonx brand, also posted slower revenue growth of 11.3%.
“The stakes around these results were higher than normal given the software/services selling pressure the market has seen this year amid fears of AI competition, and we don’t think the first-quarter results validate those fears,” said CFRA analyst Brooks Idlet.
Growth in the company’s infrastructure segment remained strong, helped by continued adoption of its latest mainframe systems. Revenue in the segment, which includes mainframe computers, grew 15.2% to $3.33 billion in the quarter.
Analysts have said IBM’s deep customer ties and AI offerings, such as Watsonx Code Assistant, a coding modernization tool for mainframes, could help it against rival AI tools.
Chief Financial Officer James Kavanaugh told Reuters that customers using the tool are seeing faster growth in mainframe consumption. “Generation AI in mainframe modernization is actually an accelerator and growth driver for the overall mainframe portfolio,” he said.
IBM’s adjusted quarterly profit was $1.91 per share, compared with estimates of $1.81.
In a post-earnings conference call, Chief Executive Arvind Krishna downplayed the impact of the conflict in the Middle East, saying IBM had its “strongest growth in the region in decades and could absorb the disruption caused by the closure of the Strait of Hormuz for a few more weeks.”
(Reporting by Anhata Rooprai in Bengaluru; Editing by Maju Samuel)