International Business Machines Corp. (NYSE: IBM) beat on income but missed on revenue for the latest quarter. The company reported that net income was $1.67 billion, or $1.87 per share, in the quarter, down from $2.69 billion, or $2.94 per share, a year earlier. On an adjusted basis, the company earned $2.68 per share, 1 cent higher than analysts’ estimates.
IBM reported sales of $18.03 billion, 3.9 percent lower than the $18.76 billion it posted in the year-prior period. Analysts had predicted revenue of $18.22 billion. Excluding the impact from currency and business divestitures, revenue dropped 0.6 percent. It was the fifth sequential quarter of falling sales for the company.
Sales from global technology services were hit by weakness in some European markets, mainly in the UK and Germany. Revenue in its traditional technology-services division fell 5.7 percent in the third quarter to $6.70 billion. IBM’s revenue from selling mainframes also fell in the quarter. Chief Financial Officer James Kavanaugh expects the mainframe business to return to a normal product cycle in the fourth quarter.
Revenue from IBM’s cloud services rose 11 percent to $5 billion. The unit, which includes the newly acquired Red Hat, helped the company beat profit expectations for the quarter. The $34 billion acquisition of Red Hat is part of Chief Executive Ginni Rometty’s efforts to revive growth in the company.
The Red Hat deal is the company’s biggest acquisition so far and aims to propel IBM to a top player in the cloud. Red Hat sells support and training for software that works seamlessly both in the cloud and on-site. On a normalized basis Red Hat revenue grew 19 percent in the quarter, up from the 14.8 percent growth in Red Hat’s last quarter as an independent company. IBM will report only a portion of Red Hat’s actual revenue for some quarters, while recording all its expenses, as required by U.S. accounting standards.