IBM has been riding a wave of strong mainframe performance in recent quarters, but the tech giant’s latest financial results have shown that this growth may be slowing, the Register reports.
In its Q3 earnings report, IBM revealed a significant 19% drop in mainframe revenue, which dragged overall company growth down to just 1% (or 2% in constant currency terms).
The company’s mainframe business has always been cyclical, with revenue surging when new machines are launched. The current z16 mainframe, introduced in 2022, is nearing the end of its cycle. CEO Arvind Krishna downplayed the decline, highlighting that the z16 outperformed previous generations and expressing optimism for the upcoming z17 launch.
However, IBM’s total revenue for the quarter was $14.97 billion—around $100 million below expectations—and the company reported a net loss of $330 million. Krishna cited various factors for the underperformance, including economic uncertainty, geopolitical issues, and fluctuating interest rates.
While the mainframe business stumbled, IBM’s software division was a bright spot. Software revenue grew 9.7%, generating $6.5 billion in revenue, with Red Hat—a key acquisition—growing even faster at 14% year-over-year. Red Hat’s success was celebrated, with Krishna pointing out that it has doubled in size since IBM acquired it five years ago, now representing $6.5 billion in revenue. OpenShift, part of Red Hat’s portfolio, has expanded over tenfold, reaching $1.3 billion in annual recurring revenue.
Krishna also emphasized IBM’s advances in generative AI and recent acquisitions like Apptio and Hashi, predicting similar growth trajectories. He touted the company’s Granite AI models, which he believes will deliver faster, more efficient results at lower costs.
IBM’s consulting arm reported flat revenue but saw an 11% increase in profit, thanks in part to the company’s “productivity actions”—IBM’s term for cost-cutting measures, which include layoffs. Krishna indicated that these efforts could save IBM $3.5 billion this year, an increase from the previously estimated $3 billion.
Despite Krishna’s optimistic outlook, the market reacted negatively to the results. IBM’s stock fell from $233 to $216 after the announcement, though it rebounded to around $225. Investors remain cautious as the company continues to transition its business toward higher-margin and higher-growth areas like software and AI.
