IBM Reports Higher 3Q Profit as Some Slipped Deals Come Through

By Elias Schisgall

International Business Machines reported a higher third-quarter profit and growing revenue across its software and infrastructure segments, as the company looks to prove to investors that its disappointing second-quarter showing was just a blip.

IBM's second-quarter profit was hit by mainframe deals that fell through, weighing on the company's software and infrastructure segments. Around two-thirds of those deals have since closed during the third quarter, and IBM is optimistic about most of the rest, Chief Financial Officer Jim Kavanaugh said.

"We feel pretty good," he said in an interview. "With the exception of maybe one or two, they're all still in play."

Investors should understand the second-quarter shortfall as a story about timing rather than demand destruction, Kavanaugh said, adding that IBM hasn't seen customers moving away from mainframes, the servers it sells to large enterprises in sectors like banking and retail.

"We do not see anyone getting off of our mainframe platform, and therefore the associated mainframe software stack on top of it," Kavanaugh said. The current z17 mainframe cycle has added about $1 billion in incremental revenue compared to the prior cycle just six quarters in, he said.

IBM reported a third-quarter profit of $2.19 billion, or $2.30 a share, compared with a profit of $1.74 billion, or $1.84 a share, a year earlier. The earnings per share figure includes a one-cent negative impact from discontinued operations.

Stripping out certain one-time items, adjusted earnings were $2.95 a share. Analysts polled by FactSet were expecting $2.85 a share.

Revenue rose to $17.1 billion, up from $16.33 billion a year prior and beating analyst expectations of $16.82 billion.

The gains were largest in IBM's software segment, where revenue grew 8% to $7.8 billion, ahead of analyst expectations of $7.66 billion. Revenue from infrastructure, which includes IBM's mainframes, rose 4% to $3.71 billion, while consulting revenue was roughly flat at $5.34 billion.

The company reaffirmed its full-year guidance for 4% to 5% revenue growth.

Kavanaugh said IBM also plans to guide for full-year software growth of 7% to 8%, lifting the low end of the range from 6%. The lower bound assumes IBM closes around 10% or more of the slipped second-quarter deals, while the upper bound represents all the deals closing.

IBM also said it now expects free cash flow to increase by more than $1 billion this year, up from its previous guidance for a roughly $1 billion increase.

Write to Elias Schisgall at elias.schisgall@wsj.com

(END) Dow Jones Newswires

October 21, 2026 16:24 ET (20:24 GMT)