The lower-margin, legacy unit provides technical support to
IBM's clients and has shrunk in recent years as companies moved to the cloud,
becoming a drag on Big Blue's earnings.
"As we issued the effective date for the spin-off of
our managed infrastructure business, our clients paused all new project
activities at the end of September and that impacted us here," Chief
Financial Officer James Kavanaugh said in an interview.
Revenue at the global technology services unit, which houses
the business set to be called Kyndryl after the spinoff, fell 4.8 percent to
$6.15 billion in the third quarter ended September 30.
Kavanaugh also said demand dropped at the systems business,
home to IBM's mainframe computers, as the end of the product cycle neared,
driving a 12 percent fall in the unit's revenue.
The slowdown in the legacy business has prompted
110-year-old IBM to shift focus to hybrid-cloud, an area where it sees a $1
trillion market opportunity, to boost growth and better compete with Amazon and
Microsoft.
Revenue at the cloud and cognitive software unit was up 2.5
percent at $5.69 billion but missed analysts' estimates of $5.77 billion,
according to Refinitiv data.
The weakness at IBM's "supposedly high-growth areas is
more problematic" than the revenue miss, said Wedbush analyst Moshe Katri.
Total revenue rose slightly to $17.62 billion, missing
expectations of $17.77 billion.
But IBM's revenue adjusted for the Kyndryl spinoff was 2.5
percent higher, helped in part by firmer demand for its consulting services
from enterprises digitizing their operations during the COVID-19 pandemic.
IBM earned $2.52 per share on an adjusted basis, compared
with estimates of $2.50 -Reuters
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