The season of big tech’s quarterly earnings report is kicking off. The financial results of the quarter ended on June 30

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are ready to be shown to the investors, and International Business Machines Corporation (NYSE: IBM) is here to start us off. The company should be proud of its services and its software, as both were the key to achieving better than expected second-quarter earnings. IBM reported quarterly revenues of $18.75 billion and adjusted earnings per share of $2.33. In the first half of next week, we are expecting the results from Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOG), and Microsoft (NASDAQ: MSFT), the mid-week is reserved for Facebook (NASDAQ: FB), followed by Amazon (NASDAQ: AMZN).

Second-quarter results

The tech giant’s quarterly revenues of $18.75 billion are above the Wall Street estimate of $18.3 billion. Compared to the year before, and after adjusting for currency and divestitures, the revenues are about flat. Company’s cloud and cognitive software business generated revenues of $6.1 billion, which is an increase of 6.1% (or 2.5% in constant currency). This segment was also above the Wall Street forecast of $5.9 billion. The revenues from Global Business Services were up 11.6% (or 7.3% in constant currency), or $4.3 billion, while the estimate was $4.1 billion. Global Technological Services, IBM’s IT outsourcing business, generated $6.3 billion, which is also above the Wall Street estimate, but down 4.1% (adjusted for currency). And finally, System revenues were down by 10.2% (in constant currency). All of this led to non-GAAP profits of $2.33 a share¸ 4 cents above the estimates. The gross profit margin reached 49.3%, which is an increase of 0.3pp.

Outlook

Jim Kavanaugh, IBM CFO, was satisfied with the fact the company reduced borrowings by $18 billion since its acquisition of Red Hat in 2019, and that the clients are adopting the hybrid cloud model, which integrates public and private could service with on-premises infrastructure. Therefore, the previous full-year adjusted cash flow forecast of $11-12 billion is still valid. As most markets are recovering from the pandemic, that is a favorable environment for IT spending, so the demand for investments into IT services and infrastructure is improving. Maybe IBM was a bit late into the cloud game, but similar to Oracle (NYSE: ORCL), it might be a solid grower in the next couple of years. As the Department of Defense decided to reset Pentagon’s $10 billion JEDI contract, that welcomed back players like IBM, offering hybrid cloud architecture, which offers extra network security to its customers.

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