IBM Sees Smallest Quarterly Revenue Drop in Over Four Years

Overall revenue at International Business Machines Corp. edged lower, falling for the 18th consecutive quarter, even as the company saw some growth in newer businesses such as cloud computing and artificial intelligence.

The Armonk, N.Y., company reported third-quarter earnings Monday, saying that revenue for the quarter was $19.23 billion, down 0.3%, as the company has attempted to transition into new lines of business as its core products have become increasingly pressured by the move to computing services delivered over the internet.

Big Blue said third-quarter earnings fell 3.2% amid weakness in its systems segment, which includes hardware and operating systems software.

Excluding charges they totaled $3.29. Analysts had expected adjusted earnings for the quarter, ended September, to be $3.23 a share, according to Thomson Reuters.

Shares of the company fell 2.4% to $150.99 in after-hours trading.

IBM continues to try to shift its business into growing areas such as artificial intelligence, cloud computing, data analytics and security as it reinvents the company.

Cloud revenue grew 2.4% to $8.75 billion during the quarter. Those services include SoftLayer, which sells access to computing capacity over the internet, and Bluemix, which, among other capabilities, sells access to software over the web. The cloud business during the quarter added new customers including Dixons Carphone Group, JFE Steel Co., Ltd. and Vodafone India.

This year, IBM has bought 12 companies including Promontory Financial Group and Truven Health Analytics to spur growth in industry-specific businesses. The company has spent $5.45 billion during the first nine months of the year, compared with $821 million during the same period a year earlier.

In financial services and health care, for example, IBM is combining some of these acquisitions with the company's artificial intelligence software known as Watson to create new offerings. For example, the Promontory deal, announced September 29, will combine the risk management and regulatory compliance consulting firm with Watson natural language processing, machine learning and deep learning capabilities to help financial services firms wade through about 40,000 regulatory changes in three million pages of records each year.

"We'll continue to run the business of consulting as we always do, but the consultants will help train and put the wisdom and knowledge of that understanding into Watson," said Bridget van Kralingen, senior vice president of IBM Global Industry Platforms in an October 18 interview. This is similar to what IBM has done with Watson in the field of oncology, helping hospitals to better match cancer patients to clinical trials.

Acquisitions were expected to add an estimated $360 million to revenues during the quarter, compared with the year-earlier period, according to Toni Sacconaghi, an analyst at Bernstein Research.

Wall Street analysts had expected revenues of $19 billion for the quarter, according to Thomson Reuters.

For the year, the company backed its forecast for per-share operating earnings of at least $13.50 a share.