Key Takeaways
- The third-quarter revenue of $14.97 billion for IBM fell short of the anticipated $15.07 billion.
- The estimated consulting income of $5.15 billion was down 0.5% from the actual amount.
- IBM’s generative AI business has grown with $3 billion in bookings.
IBM’s Q3 revenue fell short of Wall Street’s projections due to poorer results in its infrastructure and consulting businesses.
The company’s sales of $14.97 billion were less than the $15.07 billion that was anticipated. As a result, during Wednesday’s extended trading, IBM shares fell 3%.
Revenue Distribution and Growth Prospects for Generative AI
An official statement claims that IBM’s consulting division suffered, with revenue dropping 0.5% to $5.15 billion, well shy of analysts’ $5.19 billion forecast.
CEO Arvind Krishna clarified that the slowdown was anticipated since companies cut back on discretionary expenditure, which affected the market for consultancy.
The infrastructure sector also experienced a decline. The division’s revenue missed the projected $3.24 billion by 7% to $3.04 billion.
IBM reported a net loss of $330 million for the quarter, primarily as a result of a pension settlement penalty with British insurance giant Prudential, even though overall revenue increased by 1.5% year over year.
Its software segment, on the other hand, continued to be a bright spot with $6.52 billion in revenue, a 10% increase from the previous year that was above analyst projections.
With generative AI now generating $3 billion in bookings, up from $2 billion in the prior quarter, IBM is still committed to growing its artificial intelligence (AI) capabilities.
The strategic significance of AI consultancy, which currently accounts for roughly 75% of IBM’s generative AI-related revenue, was underlined by CFO James Kavanaugh.
In October, IBM also introduced its Granite 3.0 suite of generative AI models, which are available under an open-source license and are targeted at enterprise clients.
With the introduction of the TinyTimeMixer AI model, the business has also been progressing its AI research.
Market Prospects and Infrastructure
IBM reaffirmed its objective to produce more than $12 billion in free cash flow by 2024. For the first nine months of this year, the company’s cash flow has already reached $6.59 billion.
IBM is positioned for long-term growth, especially through cloud and artificial intelligence technologies, even though its infrastructure business is still struggling.
Additionally, executives noted that customers are looking forward to the 2025 release of a new mainframe computer.
Notwithstanding the quarterly underperformance, IBM’s stock has increased 44% so far this year, outpacing the 21% gain of the S&P 500 index as a whole.
