IBM raises software revenue outlook after delayed deals begin closing
IBM lifts its annual software revenue growth forecast after delayed transactions from the previous quarter begin to convert, supporting stronger-than-expected third-quarter results. The update signals improving momentum in transaction processing and hybrid cloud software, while the company also posts gains in infrastructure despite weaker demand for its Z mainframe business.
Highlights
- IBM raises annual software revenue growth outlook to 7%-8% as third-quarter revenue climbs 4.7% to $17.10 billion, beating $16.82 billion estimate.
- Software revenue rises 8.3% to $7.80 billion, with hybrid cloud sales up 11% and transaction processing software rebounding 9% after last quarter's decline.
- About 25% of transaction processing revenue comes from deferred deals while 75% is net new business, indicating robust fresh demand beyond delayed contracts.
Third-quarter performance and upgraded outlook
As reported by Reuters, IBM finance chief James Kavanaugh says the company now expects annual software revenue growth of about 7% to 8%, compared with its previous forecast of 6% to 8%, as delayed deals that unsettled investors in the prior quarter begin to close.IBM says third-quarter revenue rises 4.7% to $17.10 billion, above analysts' average estimate of $16.82 billion in data compiled by LSEG. Adjusted profit reaches $2.95 per share, beating estimates of $2.86 per share, and the company's shares rise about 4% in extended trading.
Software revenue increases 8.3% to $7.80 billion in the quarter, ahead of estimates of $7.62 billion. Within that division, hybrid cloud sales grow 11%, while transaction processing software revenue rises 9%, reversing an unexpected decline in the previous quarter.
Segment trends and business implications
Kavanaugh says about 25% of transaction processing revenue comes from deals deferred from the second quarter, while the remaining 75% reflects net new business. That mix suggests the software rebound is not driven only by delayed contract timing, but also by fresh demand in IBM's core enterprise markets.Infrastructure revenue rises 4.2% to $3.71 billion. Growth of 31% in distributed infrastructure, which includes servers and storage systems, helps offset weakness in the Z mainframe business, pointing to a more balanced performance across IBM's hardware operations.
In our earlier coverage of Wipro’s second-quarter revenue beat, we noted that the Indian IT services provider topped expectations as European client spending began to recover. We also highlighted how artificial intelligence-related services are starting to open up new revenue streams, signaling steadier demand for tech investments in overseas markets.
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