(Reuters) – Shares of International Business Machines fell more than 8% in premarket trading on Thursday, as its consulting business faces pressure from companies tightening budgets to cope with an uncertain economy and high interest rates.
Weakness in small discretionary projects has affected the consulting segment, but JPMorgan analysts said the delay could help reaccelerate activity through 2024.
“While the software acceleration was encouraging, it was offset by a more significant than expected deterioration in the Consulting sector, as well as additional FX headwinds expected for the remainder of the year,” analysts at JPMorgan.
IBM’s software business grew 5.5% in the quarter and the company announced a $6.4 billion deal to buy cloud software company HashiCorp, aiming to make the most of ‘an AI-driven boom in demand for cloud data storage capabilities.
It reported total revenue of $14.46 billion, lower than estimates of $14.55 billion, according to LSEG. Sales in its consulting segment remained stable.
Shares of the company were down 8.7% at $168.10 in premarket trading Thursday. If the losses continue, its market valuation is expected to fall by more than $14 billion.
“It was a noisy quarter, driven by consulting slowdown, offset by hardware growth,” Evercore analysts said.
“The focus will now be on how IBM manages to accelerate its revenues in the consulting and software segments.”
(Reporting by Harshita Mary Varghese; Editing by Devika Syamnath)
