IBM Warns of $3.5 Billion Forex Hit as Quarterly Earnings Beat Estimates

IT hardware and services company IBM beat quarterly revenue expectations on Monday but warned that the hit from foreign exchange for the year could be about $3.5 billion (roughly Rs. 28,000 crore) due to a strong dollar. A hawkish Federal Reserve and heightened geopolitical tensions have driven gains in the dollar against a basket of currencies over the last year, prompting companies with sizeable international operations, including Microsoft and Salesforce, to temper expectations.

IBM now expects a foreign exchange hit to revenue of about 6 percent this year, Chief Financial Officer James Kavanaugh told Reuters. It had previously forecast a 3 percent to 4 percent hit.

Second-quarter revenue was hurt by $900 million (roughly Rs. 7,200 crore) due to a stronger US dollar, Kavanaugh said.

Typically, a stronger dollar eats into the profits of companies that have sprawling international operations and convert foreign currencies into dollars.

However, strong demand at its consulting and infrastructure businesses helped IBM post second-quarter revenue of $15.54 billion (roughly Rs. 1,24,200 crore), beating analysts' average estimate of $15.18 billion (roughly Rs. 1,21,400 crore), according to Refinitiv data.

IBM sees revenue growth continuing, including in regions such as Europe and Asia Pacific, despite geopolitical turmoil and inflationary pressures, Kavanaugh said, echoing words of peer Accenture, which had last month said it does not foresee a pull back in client spending.

The 110-years-old company, whose revenue growth had hit near-stagnation for years, spun-off its large and laggard IT-managed infrastructure business last year and placed its hopes on high-growth software and consulting businesses with a focus on the so-called "hybrid cloud". Cloud revenue rose 18 percent to $5.9 billion (roughly Rs. 47,200 crore).

© Thomson Reuters 2022