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IBM posts higher than expected profit as it faces GlobalFoundries trade secrets lawsuit

Big Blue's profits came in higher than expected, but it is facing up to a potentially costly lawsuit over chip technology rights.

By Matthew Gooding

IBM’s share price rose 3.5% yesterday after delivering financial results that beat market expectations on profit, suggesting demand for IT services is holding up slightly better than anticipated as the global economic slowdown continues.

IBM’s financial results were mixed, with profit higher than expected. (Photo by JHVEPhoto/Shutterstock)

But there are other clouds on the horizon for Big Blue, as it faces a lawsuit from chipmaker GlobalFoundries, which claims IBM unlawfully shared trade secrets with Rapidus, a Japanese consortium developing new high-end semiconductors.

IBM earnings slightly better than expected

IBM provides a wide range of IT services, covering legacy technology such as mainframes through to cutting-edge cloud and quantum computing services. The company’s financial results for the three months to the end of March show that revenue from its software business grew 5.6% year-on-year, to $5.9bn, while consulting brought in $5bn, up 8% on the previous year.

Profits grew at a faster rate because of cost-cutting measures put in place across the company, but it wasn’t all good news, with infrastructure income down 3.7%, to $3.1bn.

“In the quarter, we remained focused on the fundamentals of our business, increasing productivity and generating operating leverage,” said James Kavanaugh, Big Blue’s senior vice president and chief financial officer. “As a result, we again expanded our gross profit margin, improved our underlying profit performance and increased our cash generation. We are well-positioned to continue investing for growth and returning value to shareholders through dividends.”

CEO Arvind Krishna told investors on the company’s earnings call that the requirements of customers are changing to reflect the difficult economic conditions. With many companies operating on reduced IT budgets, Tech Monitor has reported how tech leaders are turning to established technologies to find value.

Krishna said IBM clients are looking to take on digital transformation projects focused on “cost takeout, productivity and quick returns”. But he added: “While demand for our offerings that support these priorities remains solid, we are seeing some deceleration in consulting from the previous robust growth levels, especially in the United States.”

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GlobalFoundries launches trade secrets lawsuit against IBM

Meanwhile, IBM’s legal team will be kept busy by a complaint from US chip company GlobalFoundries, which is suing IBM over claims it unlawfully shared intellectual property.

The GlobalFoundries lawsuit, filed in the US district court in New York, says IBM has revealed details of chip technology developed jointly by the two companies at a facility in Albany, New York with Rapidus and another partner, Intel. GlobalFoundries acquired IBM’s chip business in 2015, along with sole rights to its IP. In addition, GlobalFoundries alleges IBM is making “unlawful” efforts to poach its staff.

Rapidus is a new Japanese state-backed chip consortium aiming to develop 2nm technology, in which IBM is a partner.

“IBM is unjustly receiving potentially hundreds of millions of dollars in licensing income and other benefits,” GlobalFoundries said in a statement. The company is seeking damages and an injunction against IBM.

Tech Monitor has contacted IBM for comment, but a company spokesperson quoted by Reuters described the lawsuit as “meritless”, adding: “Their allegations are entirely baseless, and we are confident that the court will agree.”

Read more: IBM has built Vela, a cloud-native AI supercomputer

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