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IBM software sales up 8% as the company beats on top and bottom lines

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Arvind Krishna, IBM’s chair and CEO, during an interview in New York on May 1, 2023.
Christopher Goodney | Bloomberg | Getty Images

IBMthird-quarter results that exceeded Wall Street estimates.

Here’s how the company did, compared to the consensus among analysts surveyed by LSEG, formerly known as Refinitiv:

Earnings per share: $2.20, adjusted vs. $2.13, expectedRevenue: $14.75 billion vs. $14.73 billion, expected

IBM’s overall revenue grew 4.6% year over year in the quarter, or 3.5% at constant currency, according to a statement. Net income reached $1.70 billion, or $1.84 per share, compared with a net loss of $3.20 billion, or $3.54 per share, in the same quarter one year ago. A $5.9 billion pension settlement charge hurt results in the year-ago quarter.

The company’s Software unit produced $6.27 billion in revenue. That’s up about 8% and in line with the $6.27 billion consensus among analysts polled by StreetAccount.

IBM’s Consulting division generated $4.96 billion in revenue, up around 6% but lower than StreetAccount’s consensus of $5.11 billion. Accenture said last month that revenue from communications, media and technology clients was down 12% in the August quarter.

“We still are executing extremely well from my point of view in consulting,” Jim Kavanaugh, IBM’s finance chief, told CNBC’s Kristina Partsinevelos in an interview. “I mean, if you look at the overall market, I think we’re taking share when you look at it against other consulting providers.”

But clients are still focused on cost reduction, and that’s putting pressure on discretionary consulting projects, Kavanaugh said. “It came in a little bit light because we’re dealing with a much stronger U.S. dollar position than where we were 90 days ago,” Kavanaugh said of the consulting outcome.

Revenue from the Infrastructure division, including IBM’s mainframe computers, totaled $3.27 billion. The tally, while down 2%, is more than the $3.10 billion StreetAccount consensus.

Management reiterated guidance for the full year, including revenue growth at constant currency between 3% and 5% and $10.5 billion in free cash flow. For the first nine months of the year, the company has generated $5.12 billion in free cash flow.

“While, as always, we are relying on a seasonally strong fourth quarter, we are on track to achieve about $10.5 billion for the year,” Kavanaugh said on a conference call with analysts.

During the quarter, IBM released Granite generative artificial intelligence models for composing and summarizing text. The company also said it was backing AI startup Hugging Face and bought Apptio, a seller of tools for managing cloud costs, from Vista Equity Partners for $4.6 billion.

“Our book of business in the third quarter specifically related to generative AI both in the low hundreds of millions of dollars,” IBM CEO Arvind Krishna said on the conference call.

Excluding the after-hours move, IBM shares are down about 2% this year, trailing the S&P 500 index, which is up around 9% during the same period.

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