IBM's Q3 solid with strength in Red Hat, hybrid cloud

The company reported non-GAAP third quarter earnings of $2.58 a share on revenue of $17.6 billion, down 2.6% from a year ago.

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IBM reported third quarter results in line with the expectations outlined when it announced plans to spin off its managed infrastructure services unit. The company saw strength in its Red Hat unit.

IBM reported third quarter results in line with the expectations outlined when it announced plans to spin off its managed infrastructure services unit. The company saw strength in its Red Hat unit.

The company reported non-GAAP third quarter earnings of $2.58 a share on revenue of $17.6 billion. Wall Street was expecting IBM to report third quarter revenue of $17.54 billion with non-GAAP earnings of $2.58 a share. Net earnings per share from continuing operations were $1.89. IBM's third quarter revenue was down 2.65% and down 3.1% adjusting for divested businesses adn currency. 

The results come shortly after announcing a strategy that will increase its focus on its hybrid cloud business.  That move, part of CEO Arvind Krishna's plan to focus on higher-margin businesses like AI and cloud, overshadowed IBM's quarter. 

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By division for the third quarter:

  • The cloud and cognitive software unit, which includes Red Hat, cognitive applications and transaction processing platforms, had revenue of $5.6 billion, up 7%. Cloud and data platforms revenue was up 20% led by Red Hat. Cognitive applications were up 1% and cloud sales were up more than 60%.
  • Global business services, which includes consulting, application management and global process services, had revenue of $4 billion, down 5%.
  • Global technology services had revenue of $6.5 billion, down 4%.
  • Systems revenue was $1.3 billion, down 15%, due to declines in IBM Z and storage systems.  
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CFO James Kavanaugh said on an earnings conference call: 

Clients' near-term priorities continue to include operational stability, flexibility and cash preservation, which tends to favor OpEx over CapEx. This is resulting in some project delays and purchase deferrals, which we see in perpetual software licenses and project-oriented and volume-based services. The last 7 months have made it very clear that companies need to modernize their businesses to succeed in this new normal. This is leading to an acceleration in digital transformations. Cloud and AI are at the center of these transformations.