IBM Q3 Results Will Test Software Growth After IBM Z Revenue Drop

IBM's third-quarter results on Oct. 21 will test whether software growth and demand for AI services can strengthen revenue after an IBM Z revenue drop and delayed deals weighed on the second quarter.

Revenue rose 1% to $17.2 billion in the second quarter. Software revenue increased 5% to $7.8 billion, but Transaction Processing revenue fell 8%. Infrastructure revenue declined 7% as IBM Z revenue dropped 42%. The z17 launch cycle remained ahead of prior cycles overall despite the quarterly decline.

The results will show how IBM's businesses performed after that uneven quarter. Software annual recurring revenue, a measure of revenue from continuing subscriptions and contracts, reached $24.6 billion in the second quarter, up 8% from a year earlier. That growth stood alongside the decline in IBM Z revenue and the weaker Transaction Processing result.

Generative AI accounted for about 50% of consulting signings in the second quarter and more than 30% of the consulting backlog. Those figures describe contracted work and the backlog, rather than revenue recorded during the quarter. Third-quarter revenue will provide another measure of IBM's progress, though the company has not committed to disclosing revenue from individual delayed deals.

Several large deals missed their expected second-quarter closing dates. “We did not adapt and move quickly enough,” IBM Chairman, President and CEO Arvind Krishna wrote after the shortfall. Several of those deals closed in the first weeks of the third quarter.

IBM expects full-year software revenue growth of 6% to 8% and total revenue growth of 4% to 5% at constant currency, which excludes the effect of exchange-rate changes. The third-quarter report will show whether the company remained on course for those targets after the second-quarter results.

IBM is scheduled to release its third-quarter results ahead of a 5 p.m. ET (21:00 UTC) earnings call on Oct. 21.