IBM Posts 8 Percent Revenue Gain in Q2

Globe and Mail

24-07-2025

Key Points
- Non-GAAP earnings per share rose to $2.80, surpassing estimates by $0.15 in Q2 2025.
- Revenue (GAAP) increased 8.0% to $17.0 billion in Q2 2025, driven by software and infrastructure growth.
- Free cash flow was $2.8 billion for Q2 2025. The annual outlook was raised above $13.5 billion for FY2025.
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International Business Machines (NYSE:IBM), a global technology and consulting company known for its focus on enterprise software, hybrid cloud, and artificial intelligence solutions, released its Q2 2025 earnings on July 23, 2025. The results exceeded analyst expectations for both revenue (GAAP) and non-GAAP earnings per share. IBM reported $2.80 per share in non-GAAP earnings, ahead of the $2.65 estimate, and revenue of $17.0 billion, above the $16.59 billion GAAP estimate. The period showed notable year-over-year growth in several segments and broad-based improvements in margins, though growth in its consulting business remained modest. Management described the quarter as demonstrating progress along strategic priorities, particularly in hybrid cloud and AI, and raised its annual free cash flow outlook, indicating confidence in sustained cash generation and profit expansion.
Metric Q2 2025 Q2 Estimate Q2 2024 Y/Y Change
EPS (Non-GAAP) $2.80 $2.65 $2.43 15.2 %
Revenue $17.0 billion $16.59 billion $15.77 billion 7.8 %
Gross Profit Margin (Non-GAAP) 60.1 % 57.8 % 2.3 pp
Pre-Tax Income Margin (Non-GAAP) 18.8 % 17.7 % 1.1 pp
Free Cash Flow (Non-GAAP) $2.8 billion $2.61 billion 8.9 %
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Company Overview and Strategic Focus
IBM operates as a broad-based technology provider. Its main businesses include enterprise software, consulting services, and IT infrastructure products like mainframes and cloud computing systems. The company serves a range of large organizations around the world, delivering solutions across hybrid cloud and artificial intelligence.
Recently, IBM has zeroed in on hybrid cloud and AI as pillars of growth. AI, or artificial intelligence, powers automation, analytics, and advanced computing within IBM's offerings. The company's key success factors include driving adoption of these technologies, strengthening recurring revenue streams, and leveraging its strong research and development to innovate ahead of competitors.
Quarter in Review: Business Segment Performance and Earnings Drivers
Software led the way, with revenue up 9.6% for Q2 2025. It was propelled by hybrid cloud platforms (notably Red Hat software) and automation tools—both growing 16% year over year. The company reported a "generative AI book of business" now exceeding $7.5 billion as of Q2 2025. This reflects client demand for AI-driven solutions across its portfolio. Automation and data sub-segments also recorded high single- to double-digit gains.
The consulting segment delivered a smaller increase in revenue of 3% year-over-year for Q2 2025. It was flat when adjusted for currency. Management noted ongoing caution in consulting spending, especially from government and federal clients, making it a segment exposed to macroeconomic slowdowns and client discretion. Despite moderate revenue gains, consulting's profit margin improved to 10.6% from 8.9% a year earlier (GAAP).
The infrastructure segment, which includes IBM's mainframe and distributed IT hardware products, posted the strongest relative revenue growth at 13.6% for Q2 2025. Segment margin surged to 23.3%. A key driver was new mainframe launches under the IBM Z platform—a type of powerful computer system used for mission-critical workloads, particularly in banks and other large enterprises. Mainframe sales rose 70% year-over-year. Distributed infrastructure—which includes other servers and storage—declined by 15%, showing that product-cycle timing and customer refresh behaviors significantly shaped results this quarter.
Outside these three core businesses, the financing division was mostly flat, remaining a minor contributor to corporate results. Research and development spending rose 14% year-over-year. There were no material one-time items distorting quarterly comparisons. The quarterly dividend was maintained at $1.68 per share. This marks more than a century of uninterrupted payments.
Looking Forward: Guidance and Near-Term Priorities
IBM raised its full-year 2025 free cash flow guidance to above $13.5 billion, indicating growing confidence in sustainable cash generation. Management expects revenue growth of at least 5% in constant currency for FY2025, with current exchange rates providing an estimated 1.5 percentage point tailwind to growth.
Investors should continue to watch for trends in IBM's consulting business, which remains susceptible to short-term shifts in client demand. The company's upward guidance for cash flow will be tested by larger debt levels, as total debt rose to $64.2 billion. IBM's next quarters will also be influenced by the full impact of its new products, the integration of acquired businesses like HashiCorp, and ongoing investments in research and innovation. The quarterly dividend was maintained at $1.68 per share for Q3 2025.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
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