International Business Machines Corp (NYSE:IBM) reported third-quarter revenue and profit above Wall Street expectations, driven by strong demand for AI and mainframe solutions, but shares fell 5% in after-hours trading amid concerns over its Red Hat unit.
Revenue for the quarter rose 9% year-on-year to $16.3 billion, beating analysts’ estimates of $16.1 billion.
Adjusted earnings per share came in at $2.65, surpassing the $2.44 expected. Free cash flow totaled $2.37 billion, also above forecasts of $2.21 billion.
IBM said its AI-related business now exceeds $9.5 billion, reflecting strong enterprise adoption of artificial intelligence solutions.
However, investors were disappointed with growth in the company’s closely watched Red Hat unit. Third-quarter sales in the hybrid cloud segment that includes Red Hat increased 14%, which is a slowdown from the previous period and below analysts’ average estimate of 16%. Some investors see Red Hat as a key driver of IBM’s long-term growth, and the slower pace sparked concerns despite the overall beat.
The company’s software segment posted revenue of $7.2 billion, in line with estimates and up 10% from a year earlier. Within software, automation rose 24% and data software increased 8%, while transaction processing revenue declined 1%. Consulting revenue reached $5.3 billion, above the $5.2 billion estimate, with gains in strategy & technology and intelligent operations. Infrastructure revenue climbed 17% to $3.6 billion, led by hybrid infrastructure up 28%, including a 61% surge in IBM Z mainframes. Infrastructure support revenue grew 1%, and financing revenue was $200 million, up 10% year-on-year.
"This quarter we accelerated performance across all of our segments, and again exceeded expectations for revenue, profit and free cash flow,” CEO Arvind Krishna said.
“Clients globally continue to leverage our technology and domain expertise to drive productivity in their operations and deliver real business value with AI. Our AI book of business now stands at more than $9.5 billion.”
For full-year 2025, IBM expects revenue growth of more than 5% in constant currency, with a favorable foreign exchange tailwind of roughly 1.5 percentage points. Free cash flow is projected at about $14 billion, above analysts’ $13.48 billion estimate.