IBM Q3 Hits $17.1B as Slipped Deals Close, Software Jumps 9%

IBM's third quarter revenue reached $17.1 billion, up 5% year over year (6% at constant currency) and ahead of the $16.82 billion analysts expected, as software deals that had slipped out of the prior quarter closed in the period, the Wall Street Journal reported.

Software was the engine, growing 9% at constant currency to $7.8 billion, with Red Hat up 11%, OpenShift annual recurring revenue up more than 30%, and data revenue up 20%; total software ARR reached $24.9 billion. Infrastructure revenue was $3.7 billion, up 5% at constant currency, led by 32% growth in distributed infrastructure. Consulting lagged at $5.3 billion, up only 2%. GAAP continuing-operations net income rose 26% year over year to $2.2 billion.

About a quarter of the software acceleration came from large deals that had slipped out of the second quarter. IBM "closed around two-thirds of the large deals that slipped from the second quarter," with roughly three-quarters of the growth coming from net new business. CEO Arvind Krishna told analysts the quarter showed "acceleration across our segments," led by software growth of 9%.

Generative AI is now "increasingly embedded across Consulting engagements representing 35% of backlog," IBM said, per CNBC's coverage of the call. The company raised its free cash flow outlook to grow by more than $1 billion year over year, having generated roughly $8 billion of free cash flow through nine months (up 8%). Full-year revenue growth guidance was reaffirmed, not raised, at 4% to 5% at constant currency.

Investors took the no-raise cue: shares fell about 5% in after-hours trading despite the top- and bottom-line beat. It's our seventh IBM story in the last 90 days in the enterprise AI tracker, and it lands the same day SAP cleared its first €10B+ quarter.