IBM shares slide 5% as analysts flag uncertainty around software growth

IBM shares experienced a significant 5% drop in premarket trading on Thursday, as analysts expressed concerns about the company's software unit growth. Despite this, the tech giant surpassed Wall Street expectations with its third-quarter results. Earnings per share amounted to $2.95, surpassing the estimated $2.86. Revenue reached $17.1 billion, exceeding the forecasted $16.82 billion.

In a positive turn, IBM raised its full-year free cash flow outlook, projecting a more than $1 billion increase year-over-year. The company also maintained its revenue growth outlook for the year, ranging between 4% and 5% in constant currency. CEO Arvind Krishna attributed the disciplined execution throughout the quarter to accelerated revenue growth and robust free cash flow.

The software segment drove the majority of IBM's revenue, generating $7.8 billion, a 8% increase or 9% at constant currency. Within this segment, Hybrid Cloud revenues surged 11%, Data processing rose 19%, and Transaction Processing climbed 9%. Automation revenues, however, declined by 3%. Consulting revenues remained flat year-over-year but increased by 2%, while Strategy and Technology revenues rose by 2%, and Intelligent Operations declined by 2%.

Infrastructure revenues grew by 4%, or 5% at constant currency, with Distributed Infrastructure jumping 31% and IBM Z falling by 20%. Infrastructure Support decreased by 3%, and Financing revenues dropped by 4%, or 3% at constant currency.