IBM reported its third-quarter earnings, revealing that revenue fell short of Wall Street expectations, leading to a 2.61% decline in the company's stock price in after-hours trading. The company posted a total revenue of $14.97 billion, a growth of 1% compared to $14.752 billion in the same period last year, but below the expected $15.07 billion. The net loss recorded was $330 million, a significant shift from last year's net profit of $1.704 billion, primarily due to a one-time pension settlement expense following an agreement with Prudential.
Looking ahead, IBM's management expects fourth-quarter revenue growth, at constant currency, to match the third quarter's 2% increase. The company reaffirmed its goal of surpassing $12 billion in free cash flow for 2024, having achieved $6.59 billion in free cash flow for the first three quarters of this year.
Breaking down its business segments, IBM's software division showed robust performance with revenue of $6.52 billion, marking a 10% increase year-over-year and surpassing analysts' expectations of $6.37 billion. This segment's gross margin stood at 83%, outperforming other business units.
The consulting business generated $5.15 billion, slightly below analysts' expectations of $5.19 billion, showing a 0.5% year-over-year decline. IBM's CEO Arvind Krishna noted that the results were at the lower end of the company's expectations. CFO Jim Kavanaugh highlighted the challenging economic environment for the consulting unit, a common issue faced by competitors.
Revenue from IBM's infrastructure unit was $3.04 billion, a 7% decrease year-over-year, and below the forecasted $3.24 billion. Kavanaugh mentioned that customers are anticipating the introduction of new mainframe computers in the first half of 2025.
IBM's generative AI business now exceeds $3 billion in scale, having grown by over $1 billion since the second quarter. Krishna stated that approximately 80% of this income is derived from the consulting sector, with the remainder from software.
Despite the after-hours dip, IBM's stock has risen approximately 43% year-to-date, outpacing the S&P 500 index's 21% gain during the same period.
