International Business Machines Corp. dropped about 9% in prolonged trading after the corporate’s weak consulting unit sales upset investors, overshadowing its acquisition of software firm HashiCorp Inc.
First-quarter sales gained 1% to $14.5 billion, the Armonk, New York-based company said Wednesday in an announcement. IBM also reiterated its previous outlook of $12 billion in free money flow for the fiscal 12 months ending in December.
Separately, IBM announced it has agreed to purchase HashiCorp, which sells software that helps firms manage their cloud-computing operations, for an enterprise value of $6.4 billion. The acquisition is IBM’s largest since buying software firm Red Hat in 2019 for $31.8 billion.
The deal is one other move by Chief Executive Officer Arvind Krishna to show the legacy tech hardware company into one focused on high-growth software and services. Big Blue has made other acquisitions on this area, reminiscent of Apptio for $4.6 billion last 12 months, and divested managed infrastructure, weather and health businesses.
“HashiCorp has a proven track record of enabling clients to manage the complexity of today’s infrastructure and application sprawl,” Krishna said within the statement. “Combining IBM’s portfolio and expertise with HashiCorp’s capabilities and talent will create a comprehensive hybrid cloud platform designed for the AI era.”
The shares declined to a low of $166.51 in prolonged trading after closing at $184.10 in New York. The stock has gained 13% this 12 months, exceeding the S&P 500 Information Technology Sector Index rally of 6.2%.
With the HashiCorp acquisition, IBM will run the “Red Hat playbook” by pushing the product to its global catalog of shoppers, Chief Financial Officer Jim Kavanaugh said in an interview. The deal will boost earnings before interest, taxes, depreciation and amortization throughout the first 12 months, he added, and sees HashiCorp’s free money flow margin climbing to 30% to 40% as an element of IBM.
IBM has eclipsed $1 billion in bookings for AI-focused products and consulting since mid-2023, Krishna said within the statement. That figure is roughly two-thirds consulting, and can mostly be recognized as revenue in 2025, Kavanaugh added.
Investors have been focused on the potential for slippage in IBM’s consulting division, which is its second largest business. That unit’s revenue was $5.2 billion within the period ended March 31, unchanged from the quarter a 12 months earlier.
The consulting results reflect a “weak IT spending climate,” wrote Anurag Rana, a senior analyst at Bloomberg Intelligence. Kavanaugh said that clients proceed to tighten their spending owing to an uncertain economic environment.
Red Hat posted sales growth of 9%, one other comparatively slow period for a business that after usually jumped greater than 20% each quarter. Profit, excluding some items, was $1.68 a share.
HashiCorp posted a sales gain of twenty-two% to $583 million in its most up-to-date fiscal 12 months, which resulted in January. The company has struggled recently on account of a mixture of sales execution and slowing cloud migrations, wrote Jason Ader, an analyst at William Blair. “As part of IBM, HashiCorp could benefit from a more standardized sales approach and better ability to bundle tools to drive up the value of paid subscriptions,” he wrote.
