IBM Rebounds From July Slump After Beating Third-Quarter Estimates

Two-Thirds of Mainframe Contracts Completed

Third-Quarter Revenue Up 5%; Tops Estimates

IBM rebounded after the U.S. technology company reported third-quarter results that topped market estimates. The gain came three months after the stock plunged 25% in a single day following weak earnings in July.

On Oct. 21, IBM said third-quarter revenue rose 4.7% from a year earlier to $17.1 billion, above the market forecast of $16.8 billion. Adjusted earnings per share came in at $2.95, topping estimates of $2.85. By segment, software revenue led growth with an 8% increase to $7.8 billion. Infrastructure revenue rose 4%, while consulting revenue was flat. IBM expects free cash flow this year to increase by more than $1 billion from last year. It maintained its full-year revenue growth forecast at 4% to 5%.

IBM shares rose 4% in regular trading and gained another 1.4% in after-hours trading to $255. The stock had tumbled 25% immediately after IBM reported weak second-quarter results in July, marking its biggest one-day drop on record. The recovery then slowed, leaving the shares down more than 13% from their July 13 close.

Third-quarter earnings improved as a large number of delayed contracts were signed. IBM said about two-thirds of the mainframe contracts that were not completed in the second quarter were finalized in the third quarter. Mainframes are high-performance computers used by financial firms and large corporations to process large volumes of data.

As growth in IBM’s core business slowed, the company expanded through a string of acquisitions of software companies including Red Hat, HashiCorp and Confluent. Its quantum computing business, a future growth driver, is also drawing attention. Earlier this month, IBM advanced to the final stage of a U.S. federal government program to verify quantum computing performance.

Investors remain cautious. Morgan Stanley said the signing of delayed contracts was a positive, but rising earnings expectations and macroeconomic uncertainty could weigh on the stock.

Lee Hye-in, Hankyung.com reporter hey@hankyung.com