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Analyst David Vogt also lowered estimates as they believe consulting revenue growth is likely to slow faster than expected, IBM is facing incremental FX headwinds, and margins are unlikely to expand above guidance in CY22.
“Since mid July, key functional currencies like the Yen, Euro, and British Pound have declined an incremental 2%-5%, negatively impacting IBM’s top line by at least an incremental 100bps in Q3 in our view. In addition, IT services industry demand should slow, acting as a headwind not only in the second half of CY22 but also CY23,” wrote Vogt.
In addition, he said, “IT Services bellwether Accenture” recently provided implied organic growth of just 5.5% to 8.5%, down from over 20% in the past four quarters, “highlighting the risk of a faster deceleration at IBM Consulting than expected.”
“Recently, Accenture’s organic growth has been ~800bps faster than IBM Consulting. As such, we believe our IBM ‘reported’ growth estimate of ~5% in CY23E is likely too high. Therefore, we lower our Consulting revenue growth estimate to 4% (~$19.8B vs street $20.2B) to reflect the FX headwinds and potentially slower organic growth,” the analyst concluded.
By Sam Boughedda
