IBM CEO Arvind Krishna appears at the World Economic Forum in Davos, Switzerland, January 16, 2024.
Stefan Wermuth | Bloomberg | Getty Images
IBM shares fell as much as 6% in extended trading Wednesday after the hardware, software and consulting provider announced plans to acquire cloud software maker HashiCorp and reported first-quarter revenue lower than expected by analysts.
In a statement, IBM said it plans to pay $35 per share in cash for HashiCorp in a deal with an enterprise value of $6.4 billion, net of cash. On Tuesday, the Wall Street Journal reported that IBM was close to acquiring HashiCorp, sending shares higher. Bloomberg said Wednesday that IBM was considering offering $35 per share.
The transaction would be accretive to adjusted earnings before interest, taxes, depreciation and amortization in the first full year following closing, and would be accretive to free cash flow in the second year following closing. IBM said it expects the transaction to be completed by the end of 2024. Dave McJannet, CEO of HashiCorp, will report to Rob Thomas, IBM’s senior vice president of software, if the deal is done, a spokesperson said.
HashiCorp would complement Red Hat, which has contributed to IBM’s revenue growth since its $34 billion acquisition in 2019. IBM now sells the Red Hat version of the Linux operating system for use on several public clouds, which makes it a neutral entity. HashiCorp pioneered open source software that developers rely on to control cloud infrastructure. Premium versions of cloud management software Terraform and other products have generated revenue for HashiCorp.
In 2021, HashiCorp shares began trading on Nasdaq. But revenue growth slowed and the company continued to post losses. Still, it generates revenue at a faster rate than IBM.
Shares of HashiCorp rose 4% in extended trading following the acquisition announcement.
Here are IBM’s results compared to the consensus among analysts surveyed by LSEG:
- Earnings per share: $1.68 adjusted vs. $1.60 expected
- Income: $14.46 billion versus $14.55 billion expected
IBM’s revenue rose about 1.5% year-over-year during the quarter, according to a statement. This is the company’s third revenue shortfall in the last five quarters.
Software revenue, at $5.90 billion, rose about 6% and was below the consensus of $5.96 billion among analysts surveyed by StreetAccount.
IBM’s consulting revenue was $5.19 billion, down slightly and just below the StreetAccount consensus of $5.20 billion.
Infrastructure revenues totaled $3.08 billion. It was down 0.7% but above the StreetAccount consensus of $2.94 billion.
During the quarter, IBM announced it would provide its 160,000 consultants with artificial intelligence assistants to increase productivity, and the company completed the sale of The Weather Company to Francisco Partners.
Despite the after-hours moves, IBM shares are up about 13% year to date, outperforming the S&P 500 index, which is up 6% over the same period.
Executives will discuss the report with analysts on a conference call starting at 5 p.m. ET.
This is breaking news. Please check again for updates.
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