IBM's (IBM.US) Q3 results miss expectations as consulting and infrastructure businesses lag

IBM's third-quarter results missed market expectations as consulting demand slowed. The company reported third-quarter revenue of $14.97bn, up 1.5 per cent year on year, below analysts' expectations of $15.07bn. Shares fell as much as 8 per cent in after-hours trading, and were down 2.9 per cent at $226.00 at the time of writing. The net loss for the quarter was $330m, or 36 cents a share, compared with a profit of $1.7bn a year ago. The loss was largely due to a one-time charge of about $2.7bn related to the transfer of some pension plan obligations to third-party insurance companies. Adjusted earnings per share were $2.30, topping analysts' expectations of $2.23. Revenue in the consulting business was $1.55bn in the quarter. Jim Kavanaugh, chief financial officer, said clients had not expanded their budgets in the area and some generative AI projects were coming at the expense of traditional consulting. He added that they were choosing to be cautious in spending due to ongoing economic factors such as interest rates and geopolitical tensions. "Everyone knows that consulting is under pressure right now," said Annurag Rana, an analyst at Bloomberg Intelligence. The company said orders for AI consulting and software had surpassed $3bn since the middle of 2023, up from the $2bn disclosed in IBM's previous quarter in July. About 80 per cent of the orders came from consulting and the rest from software. Sales of software rose 9.7 per cent to $6.5bn in the quarter, topping analysts' average expectation of $6bn. The Red Hat business, which IBM acquired five years ago, grew 14 per cent. Revenue from infrastructure fell 7 per cent to $3.04bn, more than expected. Kavanaugh said IBM's mainframe product cycle was coming to an end and the company planned to launch new products next year. IBM has been focused on transforming from a traditional computer company to one focused on high-growth software and services in recent years. The company has expanded its product line through acquisitions, including the planned acquisition of Hashicorp Inc. announced in April and the $4.6bn purchase of Apptio last year.