IBM’s Revenue Rises for Second Straight Quarter

International Business Machines Corp.

showed progress in delivering on Chief Executive

Arvind Krishna’s

commitment to revive growth, posting a second straight quarter of higher revenue.

The top-line increase of 3.4%, IBM’s biggest gain in three years, comes as the company is undergoing extensive changes, including the planned spinoff of some of its legacy IT activities that remain a multibillion-dollar business.

Revenue in the second quarter rose to $18.75 billion driven by its cloud, software and services businesses. The company reported adjusted earnings of $2.33 a share. A consensus of analysts expected sales of $18.29 billion and adjusted earnings of $2.31 a share, according to FactSet.

“With the economy reopening in many parts of the world, many markets and industries are getting back on track. We see this in North America and in select industries,” Mr. Krishna said on a call Monday.

IBM shares rose 4.3% in after-hours trading. The stock has gained 10% in the past 12 months.

The current economy isn’t without challenges for IBM and its rivals. “There is a war for talent going on,” finance chief

James Kavanaugh

said on the call, adding the company was investing to address its staffing needs.

When Mr. Krishna took the helm in April 2020, he pledged to restore growth at the veteran tech company. As part of that effort, IBM is planning to spin off a major part of its information-technology services operations in order to deepen IBM’s involvement in the booming field of cloud computing and artificial intelligence, Mr. Krishna has said. The separation of Kyndryl, to be based in New York City, is due to be completed by year-end.

The IT services operations that IBM is partly shedding were central to a drive by

Lou Gerstner

when he was chief executive in the 1990s to transform the company from a lumbering tech giant focused on computing hardware to a major player in services that were booming at the time.

IBM logged $7 billion in total cloud revenue in the latest quarter, a 13% increase from a year earlier. It has been betting heavily on a concept called hybrid-cloud, where customers mix the use of cloud-computing servers and tools with more traditional office-based ones. The company said it now had more than 3,200 users of its hybrid cloud, almost four times the number it had before its acquisition of cloud-software provider Red Hat, Mr. Krishna said.

Changes at IBM go beyond the planned spinoff. Earlier this month the company said its second-highest-ranking executive,

Jim Whitehurst,

was moving on two years after he joined through the $33 billion acquisition of Red Hat. Mr. Whitehurst became IBM’s first president in decades, helping to accelerate the company’s cloud-computing business. He will continue to serve as an adviser to the company after his departure.

The Red Hat acquisition, which closed in 2019, was among a number of deals undertaken by the company to bolster its cloud business, especially its hybrid-cloud efforts. IBM has also done the same with deals to boost its AI business.

IBM has been working to reduce its debt load. The company said it had $55.2 billion in debt at the end of the second quarter and had repaid $17.9 billion since the Red Hat deal closed.

IBM is also exploring the potential sale of Watson Health, The Wall Street Journal has reported. The unit, which employs artificial intelligence to help hospitals, insurers and drugmakers manage their data, was once a flagship initiative for Mr. Krishna’s predecessor,

Ginni Rometty.

However, the unit has proved unprofitable, people familiar with the matter have said.

Mr. Krishna said the company would continue to make investments to advance its strategy. “This includes making acquisitions that strengthen our portfolio,” he said.

The company also has said it was cutting an unspecified number of jobs. Structural changes it is making and the separation of the IT activities had a $600 million impact on cash in the second quarter, IBM said.

Mr. Kavanaugh said a surge in cyberattacks has spurred interest in services. “With the acceleration of cybersecurity attacks, clients are increasingly looking for modernized security platforms to detect and respond to ransomware and other attacks,” he said.

Write to Kimberly Chin at [email protected]

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