IBM Heads Lower on Dismal Quarterly Revenue

Tech giant IBM saw its shares drop on Wednesday as the company reported weaker than expected quarterly revenue.

Despite the company’s revenue being up slightly, its top two business segments fell short of estimates.

Shares dropped as much as 5% in extended trading on Wednesday after the company issued third-quarter results.

For the quarter IBM reported earnings of $2.52 a share adjusted. This is compared to the $2.50 expected by analsyts per Refinitiv. Revenue at $17.62 billion was below the $17.777 billion that had been expected by analysts, per Refinitiv.

IBM’s revenue increased slightly from a year earlier, according to a statement. Revenue grew 3% in the prior quarter. Net income dropped 33% as the company’s gross margin narrowed to 46.4% from 48% in the previous quarter.

The results “fell short of our expectations,” IBM CEO Arvind Krishna said on the earnings call.

It’ll be next month that the company expects to spin out the managed infrastructure part of Global Technology Services, under the name Kyndryl. When excluding the Kyndryl portion of the business, revenue was up 2.5%.

Some customers held off on starting projects in the quarter, with the Kyndryl deal coming up, Krishna noted.

The company’s Cloud & Cognitive Software business, including Red Hat, produced $5.69 billion in revenue, up 2.5% and less than the StreetAccount consensus of $5.77 billion.

Revenue in IBM’s global consulting unit rose about 12% to $4.43 billion in revenue, beating the $4.29 billion StreetAccount consensus.

Systems revenue, including hardware, was $1.11 billion, which down almost 12% and below the $1.23 billion consensus.

“With a competitive labor market, this is putting some pressure on our labor costs, including higher acquisition and retention costs, which is not yet reflected in our current pricing,” said Jim Kavanaugh, IBM’s CFO. “We expect to capture this value in future engagements, but it will take time to appear in our margin profile.”

The company did not provide guidance.

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