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IBM forecasts annual revenue growth above estimates on AI adoption rush

A skateboarder passes the sign for an IBM office in Cambridge

By Arsheeya Bajwa

(Reuters) -IBM forecast full-year revenue growth above market estimates on Wednesday, banking on stable demand for its IT software and consultancy services from businesses looking to adopt artificial intelligence (AI).

Shares of the company were up more than 8% in extended trading.

The company will also lay off some employees in 2024 but will hire for more AI-centered roles, an IBM spokesperson said, and will likely end the year with a largely unchanged headcount.

IBM may see a rebalancing charge similar to the about $400 million recorded in 2023, the spokesperson added.

Under CEO Arvind Krishna, the more than 111-years-old company has repositioned itself to focus on software and consulting with a renewed focus on AI, capitalizing on a broader push for its integration across industries.

The Big Blue's generative AI book of business, comprising actual sales and bookings from various offerings, roughly doubled sequentially in the fourth quarter, CEO Arvind Krishna said.

About one-third of this came from software, and the rest from consulting, finance chief James Kavanaugh told Reuters, adding the company inked AI-related deals with new customers, including Germany's SAP SE.

"A notable edge for IBM is its consulting arm in AI, which, coupled with its increasingly relevant AI software solutions...positions it favorably against competitors," said May De, analyst at Global X ETFs.

IBM expects 2024 revenue to grow in the mid-single-digits, at around 4%-6%, compared with Wall Street expectations of about 3%, according to LSEG data.

"Technology budgets should stay in line with 2023 going into '24," CEO Krishna said on a post-earnings call.

Kavanaugh added IBM continues to operate in a "very volatile and uncertain" economic environment. Still, IBM reported fourth-quarter revenue and adjusted profit above estimates, with its largest segment - software - up about 3%.

The infrastructure segment, which houses its mainframe business, reported fourth-quarter revenue of $4.6 billion, compared with Visible Alpha estimates of $4.29 billion, driven by enhancements such as embedded AI on chips, according to Kavanaugh.

Exchange rates are expected to hurt 2024 revenue by 100 basis points, Kavanaugh added.

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Krishna Chandra Eluri)