IBM’s Sales Hit by Slower Client Spending

IBM reported more than 3,500 users of its hybrid cloud Wednesday, 300 higher than the total it reported in its second-quarter results in July.

Photo: loren elliott/Reuters

International Business Machines Corp. reported weaker-than-expected revenue in the latest quarter, weighed down by its cloud business and some clients’ pause in spending.

IBM’s IBM -0.06% cloud and cognitive-software business had $5.69 billion in revenue, shy of analysts’ projected $5.77 billion, according to FactSet.

Chief Executive Officer Arvind Krishna acknowledged the segment missed internal projections but pointed to the 17% revenue growth from Red Hat, the software company IBM bought in 2019, “which is pretty much what we wanted and expected.”

The Red Hat acquisition laid the foundation for IBM’s decision to split into two pieces and focus on fast-growing businesses like cloud-computing and artificial intelligence.

Mr. Krishna, in a conference call to discuss the results, said the spending pause affected mostly hardware and Kyndryl, the tech services company IBM is spinning off, and resulted in the revenue deceleration.

IBM shares fell 4% in after-hours trading following the results. Through Wednesday’s close, IBM shares were up 12.7% so far this year.

With the legacy IT operations’ spinoff, the information technology pioneer is increasing its focus on what is known as the hybrid cloud, which allows customers to integrate public clouds with their own private clouds and data centers.

On Wednesday, IBM reported more than 3,500 users of hybrid cloud, compared with the more than 3,200 users it reported in July, when it released second-quarter results.

On a per-share basis, third-quarter profit fell to $1.25. An adjusted profit of $2.52 a share met analysts’ expectations. IBM said it recorded a hit to profit of about 56 cents a share related to costs tied to the Kyndryl separation.

Total revenue for the September quarter rose to $17.62 billion, from $17.56 billion a year earlier. Analysts polled by FactSet were looking for $17.79 billion in revenue.

IBM said it expects to end 2021 in position to deliver mid-single-digit revenue growth and about $35 billion in free cash flow in 2022-24.

Write to Maria Armental at maria.armental@wsj.com

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Appeared in the October 21, 2021, print edition as ‘IBM Revenue Disappoints, As Cloud, Client Spending Lag.’