IBM storage revenues up thanks to mainframe refresh

IBM has reported financial results for the second 2022 quarter, ended June 30, with storage hardware sales growing at the start of a new mainframe cycle.

Total group revenues were $15.54 billion, up 16 percent year-on-year at constant currency. Some 5 percent of the increase was attributed to sales to Kyndryl which was spun off last year into a separately traded entity. Net profit was $1.39 billion, up a tad on the year-ago $1.33 billion.

Arvind Krishna, IBM
Arvind Krishna

IBM chairman and CEO Arvind Krishna said: “In the quarter we delivered good revenue performance with balanced growth across our geographies, driven by client demand for our hybrid cloud and AI offerings. The IBM team executed our strategy well. With our first-half results, we continue to expect full-year revenue growth at the high end of our mid-single digit model.”

The company divides its business into four segments: Consulting, Software, Red Hat Hybrid Cloud Platform, and Infrastructure. Storage hardware is included in the Infrastructure segment as part of the Distributed Infrastructure sub-segment, but not revealed. Storage software is included in the Software segment and, again, not revealed. The segment results were:

  • Consulting – $4.8 billion, up 18 percent
  • Software – $6.2 billion, up 12 percent
    • Automation – up 4 percent
    • Data and AI – flat
    • Security – flat
    • Transaction Processing – up 12 percent
  • Infrastructure – $4.2 billion, up 25 percent
    • z Systems – up 69 percent
    • Distributed Infrastructure – up 17 percent

IBM said there was a solid z16 mainframe launch in April and the company released a new generation of Power servers earlier this month. Mainframe sales attract DS8000 storage array sales in their wake.

CFO Jim Kavanaugh said in the earnings call: “Infrastructure performance, which reflects a good start to our z16 product cycle, was up 25 percent. Software and infrastructure each include about seven points of growth from the commercial relationship with Kyndryl.” 

He added: “Distributed infrastructure revenue grew 17 percent this quarter. This growth was led by storage, driven by both high-end storage tied to the z16 cycle and distributed storage. We also had good performance in high-end Power10.” We interpret that as meaning FlashSystems sales were up.

Subscription sales are growing, Kavanaugh said. ”Across the four Hybrid Platform and Solution business areas, our annual recurring revenue, or ARR, is nearly $12.9 billion, up 8 percent.”

The company had expected full-year free cashflow to be between $10 billion and $10.5 billion but reduced that to $10 billion as a result of withdrawing its business from Russia. It made no comment about supply chain or pandemic issues in its earnings release and presentation, but they did feature in the earnings call. Kavanaugh mentioned the “impact of increased component cost and supplier premiums” on z16 profitability.

Kavanaugh said third-quarter revenue expectations are for year-on-year growth of 9 to 10 percent at constant currency. Overall, he said: “We are a faster-growing, focused, disciplined company with sound business fundamentals.”