IBM Beats Q1 Expectations with Strong Software Revenue and Margin Expansion

ARMONK, N.Y. — International Business Machines Corporation (NYSE: IBM) reported better-than-expected results for the first quarter of 2025, driven by strong software growth, robust operating margins, and solid cash generation. Revenue for the quarter came in at $14.5 billion, representing a 1% increase year-over-year (2% at constant currency).

“Demand for generative AI remains strong, and we are seeing this translate into a pipeline now exceeding $6 billion, with over $1 billion added in Q1 alone,” said Arvind Krishna, IBM’s Chairman and CEO. “We are maintaining our full-year guidance as our momentum and fundamentals remain intact.”

Key Financial Highlights – Q1 2025
Revenue: $14.5 billion, up 1% (2% at constant currency)

Net Income (GAAP): $1.1 billion, or $1.12 per diluted share

Operating Net Income (Non-GAAP): $1.5 billion, or $1.60 per share

Gross Profit Margin:

GAAP: 55.2% (+170 bps)

Non-GAAP: 56.6% (+190 bps)

Free Cash Flow: $2.0 billion, up from $1.91 billion a year ago

Cash from Operating Activities: $4.4 billion

Cash on Hand: $17.6 billion (including restricted cash and marketable securities)

Total Debt: $63.3 billion (up $8.3 billion YTD due to acquisitions)

Segment Performance
Software: $6.3 billion in revenue (+7%, +9% constant currency)

Hybrid Cloud (Red Hat): +12%

Automation: +14%

Data & AI: +5%

Consulting: $5.1 billion in revenue (−2%, flat at constant currency)

Strategy & Technology: −3%

Intelligent Operations: −2%

Infrastructure: $2.9 billion in revenue (−6%)

IBM Z: −15%

Distributed Infrastructure: −5%

Infrastructure Support: −3%

Financing: $0.2 billion in revenue (−1%)

Profitability and Cash Flow
CFO James Kavanaugh emphasized that IBM’s performance reflected strong operational discipline:

“Our Software-driven revenue growth, combined with productivity initiatives, led to significant margin expansion and healthy free cash flow. We remain in a strong liquidity position, enabling us to invest in growth and return capital to shareholders.”

IBM returned $1.5 billion in dividends during Q1.

The company spent $7.1 billion on acquisitions, including HashiCorp.

2025 Outlook (Unchanged)
Revenue Growth: At least 5% in constant currency

Free Cash Flow: ~$13.5 billion

Q2 Revenue Forecast: Between $16.4 billion and $16.75 billion

FX expected to provide a 1 to 1.5 point tailwind for the full year