IBM beat third quarter estimates on software and infrastructure growth, reporting revenue of 17.1 billion dollars for the quarter ended September 30, up 5 percent year over year. Adjusted earnings rose 11 percent to 2.95 dollars per share, ahead of the consensus estimate of about 2.87 dollars, while GAAP net income rose to 2.19 billion dollars from 1.74 billion dollars a year earlier.
Software was the engine of the quarter. Software revenue grew 8.2 percent to 7.8 billion dollars, with hybrid cloud revenue up 11 percent on Red Hat strength and data revenue up 20 percent at constant currency, helped by Confluent. Software annual recurring revenue reached 24.9 billion dollars, up 8 percent, and software segment profit climbed 15.2 percent to 2.73 billion dollars, lifting margin to 35 percent.
Delayed deals finally close
Part of the software rebound was about timing. Around two thirds of large transactions delayed from the second quarter closed in the third quarter, contributing roughly one quarter of the sequential software growth acceleration, according to company commentary reported with the results. Transaction processing rebounded sharply, growing 10 percent at constant currency after a soft prior quarter, while automation declined 3 percent against a challenging comparison.
Infrastructure revenue climbed 4.2 percent to 3.7 billion dollars, with distributed infrastructure up 31 percent even as mainframe revenue fell 20 percent in the quarter. Consulting revenue was roughly flat at 5.3 billion dollars, and financing revenue declined 4 percent to 192 million dollars. Zacks reported that IBM raised its 2026 free cash flow growth outlook to more than 1 billion dollars, backed by productivity improvements.
What the quarter proves, and what it does not
Chief executive Arvind Krishna said clients are deploying IBM technology to transform entire operating models, and the company kept its full year constant currency revenue growth outlook at 4 to 5 percent. The board also approved a quarterly cash dividend of 1.69 dollars per common share, continuing a dividend record that stretches back to 1916.
The quarter answers the second quarter question, whether delayed deals were lost demand or merely delayed demand, in favour of timing. It does not answer the longer question, whether consulting can return to growth while clients spend on software and infrastructure first. For now, IBM has a beat, a raised cash flow outlook, and a software business growing fast enough to carry the group. The next test is whether consulting follows.
