IBM (IBM, Financial) reported third-quarter earnings below market expectations, influenced by a decline in consulting demand. The company's revenue for the quarter was $14.97 billion, a 1.5% increase year-over-year, falling short of analysts' forecasts of $15.07 billion. Post-earnings, IBM’s stock price fell as much as 8% in after-hours trading and stood at $226.00, a decline of 2.9% at the time of reporting.
The third quarter saw a net loss of $330 million, translating to a loss of 36 cents per share, compared to a net profit of $1.7 billion in the same period last year. The loss was primarily attributed to a one-time charge of approximately $2.7 billion for transferring a portion of pension obligations to third-party insurers. However, the adjusted earnings per share were $2.30, surpassing analyst expectations of $2.23.
IBM's consulting revenue for the quarter was $5.15 billion. CFO Jim Kavanaugh mentioned that clients have not been expanding their budgets, with some generative AI projects being pursued at the expense of traditional consulting. He added that economic uncertainties, including interest rates and geopolitical tensions, have led to cautious spending.
Notably, since mid-2023, AI consulting and software orders have exceeded $3 billion, up from the $2 billion reported in July. Approximately 80% of these orders were from consulting, with the remainder from software. Software sales increased by 9.7% to $6.5 billion, outperforming the analyst average estimate of $6.4 billion. The Red Hat division, acquired five years ago, saw a growth surge of 14%.
Infrastructure revenue dropped by 7% to $3.04 billion, a larger decline than anticipated. Kavanaugh indicated that IBM's mainframe product cycle is nearing its end, with new product releases planned for next year.
In recent years, IBM has been transitioning from a traditional computing company to a focus on high-growth software and services sectors. This includes strategic acquisitions like the planned purchase of Hashicorp Inc. announced in April and last year's $4.6 billion acquisition of Apptio.
