Technology companies started reporting quarterly earnings this week, signaling continued IT spending.

Jeffrey Schwartz

January 26, 2022

4 Min Read
Earnings
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Despite the sharp decline in technology stock prices in January, IBM, Microsoft and Intel are signaling continued IT spending growth. The three companies have reported that revenues and profits for their most recent fiscal quarters exceeded expectations. More important, they issued encouraging outlooks for 2022.

IBM kicked off the tech earnings reporting season Monday estimating mid-single digit growth this year, compared to 3.9% in 2021. Microsoft on Tuesday reported a strong outlook across all its segments, and notably its Intelligent Cloud group, driven by Azure. Projected Microsoft Intelligent Cloud revenues of $18.75-$19 billion for the third quarter in the company’s 2022 fiscal year will exceed consensus estimates of $18.15 billion. And Intel on Wednesday reported that it expects revenues this quarter of $18.3 billion, above average forecasts of $17.6 billion.

The forecasts build on better-than-expected results reported this week by the three companies. During the quarter that just ended last month, they reported revenues and earnings that exceeded analysts’ consensus expectations. During the fourth calendar quarter:

  • IBM revenues of $16.7 billion for the fourth quarter of its 2022 fiscal year exceeded estimates of $15.96 billion, rising 6.5% year-over-year.

  • Microsoft revenues of $51.73 billion surpassed expectations of $50.88 billion and grew 20% year-over year.

  • Intel’s $19.5 billion in revenues exceeded average forecasts of $18.31 billion, increasing 4% compared to the same period last year.

Economic Headwinds

The omicron variant of COVID-19, interest rate hikes and rising inflation have stoked fears that customers would cut IT spending. But labor shortages and signs of a growing economy are fueling more investments in technology, according to vendors and partners.

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Microsoft’s Satya Nadella

“Overall, what we see is pretty strong demand signal,” said Microsoft chairman and CEO Satya Nadella during Tuesday’s earnings webcast. “Quite frankly, going into the pandemic, we saw demand increase because of the constraints the pandemic put on corporations and the increased consumer activity. And then coming out of the pandemic, we’re seeing a lot of constraints on the economy. And the only resources that can help drive productivity while keeping costs down is digital tech.”

Those constraints, besides labor shortages, include a shifting business climate and ongoing supply chain disruptions. IBM chairman and CEO Arvind Krishna shared Nadella’s view during its earnings call that customers will continue investing in IT.

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IBM’s Arvind Krishna

“The trend we see is clear across industries,” Krishna said. “Clients see technology as a major source of competitive advantage. This reality of technology being about a lot more than cost will persist and explains why clients are eager to leverage hybrid cloud and artificial intelligence to move the business forward.”

Partners Also Seeing Strong Demand

Partners are seeing the same trends that vendors are reporting. Tony Guidi, senior VP of strategic partnerships at Core BTS, said its customers are accelerating their cloud migrations. Guidi said supporting remote workers will remain a permanent requirement.

“We haven’t seen any clients start to claw that back, especially clients [that] were traditionally all in-house working from offices around the country,” Guidi said. “They’ve realized that they can do business and do business effectively, remotely. We even see some of our clients beginning to shut down commercial office space. As leases begin to expire, they just don’t need the same amount of space.”

Eric Boyd, founder and CEO at resonsiveX, said customers have not slowed down on technology investments.

“The pandemic has added a whole new level of pressure on customers,” Boyd said. “It has accelerated onboarding more of these cloud solutions and optimizing their processes.”

Sharp swings in technology stock prices this month, at least for now, haven’t put a damper on forecasts.

“I would suspect that this volatility we’ve seen recently will not have much of an impact,” IBM’s Krishna said. “Now, if it becomes into an overall bear market correction, that that would be different, but I don’t think we’re anywhere close to that.”

Want to contact the author directly about this story? Have ideas for a follow-up article? Email Jeffrey Schwartz or connect with him on LinkedIn.

 

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About the Author(s)

Jeffrey Schwartz

Jeffrey Schwartz has covered the IT industry for nearly three decades, most recently as editor-in-chief of Redmond magazine and executive editor of Redmond Channel Partner. Prior to that, he held various editing and writing roles at CommunicationsWeek, InternetWeek and VARBusiness (now CRN) magazines, among other publications.

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