IBM Lifts Software Growth Outlook to 7–8% as Delayed Deals Begin Closing

IBM now expects annual software revenue growth of about 7% to 8%, compared with its previous 6% to 8% range, finance chief James Kavanaugh told Reuters. The stronger lower end follows a quarter in which some previously delayed deals began to close.

Third-quarter revenue reached $17.1 billion, ahead of the $16.82 billion analyst average cited by Reuters using LSEG data. Operating non-GAAP earnings were $2.95 per share, compared with the $2.86 estimate. IBM’s GAAP diluted earnings were $2.31 per share, a separate accounting measure.

Transaction processing rebounds

Software generated about $7.8 billion in revenue. IBM’s release reports growth of 8%, or 9% at constant currencies, with Red Hat hybrid-cloud revenue increasing 11% and transaction processing increasing 9%.

Kavanaugh told Reuters that roughly a quarter of transaction-processing revenue came from deals deferred from the second quarter, while the remainder was new business. That explanation concerns the transaction-processing business, not a claim that a quarter of IBM’s total revenue was carried over.

The improvement comes after earlier concern about customers redirecting spending from software toward data-center infrastructure.

The group forecast has a different scope

IBM’s official release maintains its overall full-year revenue growth expectation of 4% to 5% at constant currencies. It also says free cash flow is now expected to increase by more than $1 billion from a year earlier.

Infrastructure revenue grew about 4%, with distributed infrastructure increasing 31% while IBM Z revenue fell 20%. Consulting revenue was broadly flat as reported. The recovery was therefore uneven across the company rather than a uniform acceleration in every segment.

The software guidance and easing deal delays are the central new developments; they should not be read as an increase to IBM’s unchanged group revenue-growth range.

Sources

• IBM: official Q3 results and full-year expectations
• Reuters: CFO interview, software outlook and analyst comparisons