IBM falls as enterprise-spending constraints choke consulting demand

FILE PHOTO: A logo of IBM is seen at the Mobile World Congress in Barcelona, Spain February 28, 2018. REUTERS/Yves Herman/File Photo

(Reuters) - Shares of International Business Machines fell more than 8% in premarket trading on Thursday, as its consulting business faces pressure from enterprises tightening their budgets to cope with an uncertain economy and high interest rates.

Weakness in smaller discretionary projects affected the consulting segment, but analysts at J.P.Morgan said the backlog could help reaccelerate the business through 2024.

"Although software acceleration is encouraging, this was offset by more significant-than-expected deterioration of Consulting, along with incremental FX headwinds expected for the rest of the year," analysts at J.P.Morgan said.

IBM's software business grew 5.5% in the quarter and the company announced a $6.4 billion deal to buy cloud software company HashiCorp, aiming to make the most of an AI-led boom in demand for the data storage capabilities of the cloud.

It reported total revenue of $14.46 billion, lower than estimates of $14.55 billion, according to LSEG. Its consulting segment sales were flat.

Shares of the company were down 8.7% at $168.10 in premarket trading on Thursday. If losses hold, its market valuation is set to fall more than $14 billion.

"This was a noisy quarter driven by consulting slowdown offset by hardware growth," analysts at Evercore said.

"Focus now will be on how does IBM execute on revenue acceleration across both consulting and software segments."

(Reporting by Harshita Mary Varghese; Editing by Devika Syamnath)

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