IBM Q3 revenue rises 5% to $17.1 billion on software strength

NEW YORK, US: International Business Machines Corporation (IBM) reported a 5 per cent increase in third-quarter revenue to $17.1 billion, surpassing analyst expectations as the technology giant successfully executed deferred infrastructure contracts and recorded strong growth in its software division.

The results mark a notable recovery for the company following a challenging second quarter. In July, IBM disclosed that clients were temporarily reallocating their capital expenditure toward processors and servers to secure supply-constrained infrastructure amid artificial intelligence demand. This shift negatively impacted its mainframe operations, triggering a 25 per cent single-day decline in share value earlier in the year.

For the quarter ended September 30, the software segment achieved an 8.3 per cent expansion to $7.8 billion, exceeding Wall Street projections of $7.64 billion. The infrastructure division, which encompasses mainframe servers, demonstrated a 4 per cent growth to $3.7 billion. According to Chief Financial Officer Jim Kavanaugh, approximately two-thirds of the mainframe and related software contracts that were deferred earlier in the fiscal year have now been executed.

Adjusted earnings per share reached $2.95 in the third quarter, surpassing the consensus estimate of $2.86. Looking ahead, the corporation revised its full-year free cash flow outlook, now projecting an increase of more than $1 billion, up from its prior expectation of approximately $1 billion. The company continues to expect full-year constant currency revenue growth in the range of four to five per cent.

The execution of these delayed contracts indicates that enterprise demand for the core infrastructure remains resilient despite short-term capital reallocation towards AI hardware. Furthermore, the company is addressing emerging industry challenges; in July, IBM launched Lightwell, a $5 billion commitment backed by new frontier AI capabilities to address open-source software vulnerabilities, with early adopters including major financial institutions. The robust software performance underscores the ongoing strategic transformation into a high-growth software enterprise, driven by substantial acquisitions including Red Hat, HashiCorp, and Confluent.

Following the announcement, IBM shares increased roughly 5 per cent during after-hours trading from a regular session close of $251.46 in New York, though the stock remains down 15 per cent year-to-date. Beyond its core business, IBM continues to invest aggressively in quantum computing. The company recently announced a letter of intent to build Anderon, the world's first pure-play quantum wafer foundry, supported by $1 billion in incentives and a $1 billion cash contribution from IBM. The technology giant plans to invest more than $10 billion in quantum over the next five years and remains on track to deliver the first large-scale fault-tolerant quantum computer by 2029.