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IBM’s quarterly revenue beats estimates on resilient software and a strong mainframe

Photo: IBM
Photo: IBM

IBM (IBM.N), a provider of IT software and consulting services, posted third-quarter revenue on Wednesday that was marginally higher than Wall Street projections. The company’s mainframe business was also stronger than anticipated, and there was consistent demand for its software solutions.

Following the bell, trading for the Armonk, New York-based company’s shares increased by 2%. Like its competitors in the IT services sector, IBM is experiencing a challenging macroeconomic climate that has led to more client budget cuts, with consulting being the most severely affected.

Although the company’s overall business growth has slowed down from the previous year, it maintained its yearly aim for revenue growth and the creation of free cash flow.

According to IBM Chief Financial Officer James Kavanaugh, the company’s generative artificial intelligence (AI) book of business, which may include actual sales and bookings, was in the “low hundreds of millions of dollars” for the third quarter. Ernst & Young is among the clients.

Big Blue said it was receiving a lot of demand for its software and consulting services from customers looking to integrate the technology into their operations. Big Blue began offering AI applications to businesses many years before the generative AI craze took off.

When the influence of a strong dollar was taken out of the equation, revenue in its software segment—which now includes the recently acquired IT budgeting software provider Apptio—rose by over 8%.

Revenue in its infrastructure division, which houses its mainframe computers, decreased 3.2% to $3.3 billion at constant currency, according to Visible Alpha, compared to analysts’ estimates of $3.13 billion.

The 111-year-old business, which generates more than half of its revenue outside of the US, said that a strong dollar during the three months that ended on September 30 damaged its quarterly revenue by roughly $250 million more than anticipated. As a result, it now projects that its overall fiscal 2023 revenue would be impacted by between $550 million and $600 million.

LSEG data shows that IBM’s sales increased by almost 5% to $14.8 billion in the third quarter, against an expectation of $14.73 billion.

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