(Reuters) – International Business Machines missed analysts’ estimates for third-quarter revenue on Wednesday, hurt by weakness in its consulting segment as businesses cut back on discretionary expenses, coupled with declines in the infrastructure business.
IBM’s shares fell 6% in extended trading.
Total sales grew about 1% to $14.97 billion, missing estimates of $15.07 billion, according to data compiled by LSEG.
An uncertain macroeconomic backdrop has prompted businesses to hold back on spending, impacting businesses like IBM, which provide consulting services.
“There’s still temporary challenges around interest rates, around inflation, around geopolitical tension, around demographic shifts,” Chief Financial Officer James Kavanaugh told Reuters.
Conversely, IBM’s software segment recorded its biggest jump in quarterly revenue in three years, driven by sustained demand from enterprises expanding their cloud infrastructure to accommodate generative AI technology.
Software growth has helped drive profits. The Big Blue recorded adjusted earnings of $2.30 per share for the third quarter, beating analysts’ average estimate of $2.23 per share, according to data compiled by LSEG.
The company’s AI Book of Business — a combination of bookings and actual sales across various products — grew to $3 billion, up $1 billion from the second quarter.
The book was one-fifth software and four-fifths consulting in the third quarter.
However, this growth is not yet reflected in the overall consulting segment, as companies have directed spending towards longer-term consulting projects focused on their AI businesses.
Revenue from consulting was relatively flat in the third quarter, down about 0.5% at $5.15 billion, compared to estimates of $5.24 billion.
The company’s infrastructure segment, which houses IBM’s mainframe, saw revenue decline 7% to $3.04 billion. The mainframe business is at the end of a three-year product cycle, when sales cyclically slump.
IBM will launch new infrastructure products in the first half of 2025, expecting improvement in the segment, Kavanaugh said.
(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Alan Barona)
