IBM (IBM) reported a disappointing 1% decline in profit and softer sales late Thursday as an improvement in its cloud business failed to stem bleeding sales in others groups like systems and technology.

The Armonk, N.Y.-based tech giant reported net income of $3.03 billion, or $2.72 a share, compared with a year-earlier profit of $3.06 billion, or $2.65 a share.

Excluding one-time items, IBM said it earned $3 a share, missing average analyst estimates in a Thomson Reuters poll by five cents. The results ignited a sell-off after hours, pushing IBM’s shares down more than 3.5% to $199.92 in recent trade.

Revenue for the three-month period was $23.4 billion, down 5% from $24.7 billion a year ago and missing the Street’s view of $24.62 billion.

“In the first quarter, we grew operating net income, earnings per share and expanded operating margins but we did not achieve all of our goals in the period,” IBM CEO Ginni Rometty said in a statement.

The company was unable to close “on a number of software and mainframe transactions” that it had expected to during the quarter. It has moved those to the current period.

While IBM said the services businesses generated “significant new business,” service revenue was down 4% year-over-year. Software revenue was flat and systems and technology sales slumped 17%, offsetting a more than 70% revenue improvement in IBM’s cloud business.

Looking ahead, IBM says it expects to benefit from the closing of those transactions as well as investments being made in other growth and restructuring initiatives that are targeted at improving performance in the more underperforming business units.

The company says it is “confident” in its transformation model and continues to anticipate fiscal 2013 operating earnings of at least $16.70 a share, below the consensus view of $16.77.

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