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IBM stock slides despite earnings beat, strong tech demand

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Yahoo Finance Live anchors discuss IBM stock performance amid strong second-quarter earnings.

Video Transcript

BRAD SMITH: Now the shares of IBM. They are moving lower here pre-market by about 5 and 1/2% after the company announced that it was trimming its cash forecast. This, despite beating on the top and bottom lines there. You're taking a look at some of the actuals versus the estimates with those beats. But particularly here for companies-- and the FX headwind was played out in this IBM earnings report and in this most recent quarter.

But I think going forward from here, when we talk about tech companies that are looking at headcount reductions or cost restructurings and thinking through their profit and loss scenario, the P&Ls, are going to continue to focus back on, OK, where can we start to trim some of the excess costs. And unfortunately, for a former marketer and myself, that means less marketing dollars, but that also means less headcount in many of these tech scenarios as well.

JULIE HYMAN: Right. I mean, here, too, IBM is really pointing the finger at the stronger dollar. Also, they had lost business in Russia as we saw so many companies exit from there. Specifically, that free cash flow forecast is going to $10 billion this year, which is the lower end of their prior range. And again, they're trying to emphasize that demand is remaining strong, that a lot of it has to do with currency effects. Sales last quarter were up by 9% and did beat estimates.

And we showed the breakdown of the various units here, with infrastructure being the fastest-growing segment. They released a new mainframe. Some analysts are saying, then, that means that this growth is not going to be sustainable because of that, because a lot came of it, a lot came from that. And remember, speaking of spinoffs, they spun off Kyndryl Holdings, which is their legacy infrastructure business. And I guess they sell a lot now to IBM-- or IBM sells a lot to Kyndryl. No, they sell a lot to--

Anyway, there's still a very strong relationship between those two.

BRAD SMITH: For Big Blue, going forward from here, I mean, this is clearly a far different era of investment into their business of kind of, as is going to be a theme throughout this earnings season, rightsizing the company as operations. For them, we heard years ago about all of these strategic imperatives, whether that was the blockchain or artificial intelligence, and now is kind of this "show me" state for so many investors who had been waiting for that two- to three-year time horizon to actually take effect so that they were realizing this in their margins.

And even as we're seeing some of the pullback in spending on larger corporate projects, where their customers are continuing to buy into the solutions that an IBM would offer, that's the key kind of pivotal mindset for an investor that's looking at IBM and trying to figure out, OK, is that the baseline now that we can expect, have you already sold so well into some of the different blockchain imperatives and whatnot over an extended time period that that's now expected by your portfolio base at this point in time, and is that locked in to the point where, OK, we're not going to see a massive decline in revenue in this new business unit that was a major-- that was a big bet, if you will.

JULIE HYMAN: Right. Well, cloud revenue, I think, is the biggest bet that IBM has placed here, and that was up-- revenue there was up 18% in the quarter. But you know, I don't think people viewed IBM as a, quote, unquote, "growth company"--

BRAD SMITH: No.

JULIE HYMAN: --for a long time, even if it had some growthy aspects or units. So I don't know what investors are used to when it comes to IBM. They have outperformed the S&P this year. They're not down as much.