IBM's third-quarter results beat estimates on resilient software demand

A skateboarder passes the sign for an IBM office in Cambridge

By Chavi Mehta

(Reuters) - IT software and consultancy services provider IBM reported third-quarter revenue and profit above Wall Street targets on Wednesday, buoyed by stable demand for its software solutions.

Shares of the Armonk, New York-based company rose 2% in trading after the bell.

IBM, like the rest of the IT services industry, is operating in a tough macroeconomic environment that has triggered a further tightening of client budgets.

While peers like Accenture flagged deepening weakness in consulting deals, IBM's finance chief James Kavanaugh told Reuters the company had grabbed market share in that segment.

Clients continued to cut back on discretionary projects, a trend that has remained unchanged since the last few quarters, he said.

Kavanaugh also said IBM had "low hundreds of millions of dollars" under generative artificial intelligence (AI) sales or bookings in the third quarter, with clients including accounting firm Ernst & Young and Truist Bank.

Big Blue, which started providing AI applications to enterprises years before the generative AI hype took over, said it was seeing strong interest for its software and consulting services from "thousands of clients" who want to infuse the technology into their operations.

"The company has done a fantastic job in adapting to the market's needs, both in the AI and cloud segments," analyst Thomas Monteiro said.

IBM reiterated its annual target for revenue growth and free-cash-flow generation.

Revenue at its software segment, which now includes newly acquired IT budgeting software maker Apptio, rose nearly 8%, excluding the impact from a strong dollar.

The 111-year-old company, which makes more than half of its revenue outside the United States, said a strong dollar during the three months ended Sept. 30 hurt its quarterly revenue by about $250 million more than expected earlier.

IBM's revenue in the third quarter rose about 5% to $14.8 billion, compared to an estimate of $14.73 billion, according to LSEG data.

Adjusted quarterly profit per share of $2.20 also beat estimates.

(Reporting by Chavi Mehta in Bengaluru; Editing by Pooja Desai)