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IBM profit rises as delayed deals boost revenue

International Business Machines (IBM) reported stronger third-quarter results as delayed customer deals returned, helping the technology company increase revenue and profits. The performance offered some relief after a disappointing previous quarter, although concerns remain about whether the recovery in its software business can continue.

IBM’s revenue rose 5% year-on-year to $17.1 billion in the quarter ended September 30, 2026, beating market expectations. Net profit increased 26% to $2.2 billion, while adjusted earnings reached $2.95 per share, exceeding analysts’ estimates.

The improvement was supported by stronger software sales and a recovery in infrastructure deals, including business linked to the company’s mainframe computers. IBM also raised its full-year software revenue growth outlook, signalling greater confidence that delayed contracts are moving forward.

However, the latest results have not entirely eased investor concerns. On October 22, IBM shares fell in premarket trading after analysts questioned how much of the software growth reflected genuinely stronger demand and how much came from deals postponed from the previous quarter.

Delayed deals return to support growth

IBM’s second-quarter performance had been affected by customers delaying some mainframe hardware and associated software purchases. The delays raised concerns that businesses were changing their spending priorities, particularly as demand for artificial intelligence infrastructure increased.

Chief Financial Officer James Kavanaugh said roughly two-thirds of the delayed mainframe deals had closed during the third quarter. Most of the remaining transactions were still being pursued, suggesting that the earlier weakness was largely related to timing rather than customers abandoning IBM’s products.

The return of these deals helped improve performance across the company’s infrastructure and software businesses. IBM said it had not seen customers moving away from its mainframe platform, which remains important for large organisations in sectors such as banking and retail.

The recovery is significant for IBM as it seeks to reassure investors that its established enterprise technology business can continue growing alongside its investments in artificial intelligence and hybrid cloud services.

Software business leads revenue growth

IBM’s software segment generated revenue of $7.8 billion, an increase of around 8% from a year earlier. The performance exceeded analyst expectations and made software the company’s strongest major business segment during the quarter.

Within the segment, revenue from hybrid cloud products, including Red Hat, increased 11%. Data-related software revenue rose 19%, while transaction processing revenue grew 9%. The automation business, however, recorded a 3% decline.

The results underline IBM’s strategy of expanding its software portfolio through cloud computing, data management and enterprise technology. The company has also used acquisitions to strengthen its position in these markets.

Despite the growth, the quality of the recovery has become a point of debate. Analysts at Bank of America estimated that approximately $250 million of software growth came from deals postponed from the second quarter. This raised questions about whether the business can maintain the same pace once the delayed transactions have been completed.

Infrastructure improves, consulting remains flat

IBM’s infrastructure business recorded revenue of $3.7 billion, up 4% year-on-year. Growth was supported by a 31% increase in distributed infrastructure revenue, while its IBM Z mainframe business declined 20%, reflecting differences in product cycles and customer spending.

Consulting revenue remained broadly unchanged at $5.3 billion. The segment’s performance was relatively subdued compared with software, highlighting the uneven pace of growth across IBM’s operations.

The company reported an adjusted operating profit margin of 19.3%, up 0.7 percentage points from a year earlier. Free cash flow reached $3 billion during the quarter, an increase of $700 million, providing additional financial flexibility.

IBM raises software growth outlook

Following the stronger results, IBM raised the lower end of its full-year software revenue growth forecast. It now expects software revenue to grow by approximately 7% to 8%, compared with its previous range of 6% to 8%.

The revised outlook reflects progress in closing delayed contracts. However, the forecast also depends on how many of the remaining deals are completed, leaving some uncertainty around the pace of growth in the coming months.

IBM maintained its overall full-year revenue growth expectation of 4% to 5%. It also expects free cash flow to increase by more than $1 billion year-on-year, improving on its earlier guidance.

Chief executive Arvind Krishna has continued to position IBM around enterprise software, hybrid cloud and artificial intelligence, areas where businesses are investing to modernise operations and manage growing data requirements.

Investors remain cautious about recovery

Despite the earnings beat, the market response showed that investors are looking beyond headline revenue and profit growth. IBM shares fell around 6.5% in premarket trading on October 22 as analysts questioned whether the software rebound could be sustained.

The concern is that delayed deals may have shifted revenue between quarters rather than created additional demand. If those transactions fade in the coming months, IBM could find it harder to maintain its recent growth rate.

 

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IBM misses revenue estimates on weak client spending

IBM reported weaker-than-expected second-quarter revenue as enterprise customers delayed technology spending amid economic uncertainty.

The company said cautious client budgets slowed new project approvals, affecting sales despite continued demand for artificial intelligence and hybrid cloud solutions. IBM highlighted growing interest in its watsonx AI platform but said stronger AI demand could not fully offset weakness in other businesses.

Following the results, the company’s shares declined as investors reacted to the revenue miss. IBM remains optimistic about its long-term growth strategy, betting that AI, software and consulting services will drive future performance once enterprise spending recovers.

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Corporate

IBM develops world’s first sub-1 nanometer AI chip

IBM has unveiled what it calls the world’s first sub-1 nanometer chip technology, marking a major breakthrough in semiconductor research that could power the next generation of artificial intelligence (AI), cloud computing and advanced electronic devices.

The new chip is built using a 0.7-nanometer (7-angstrom) transistor architecture called Nanostack, allowing engineers to pack nearly 100 billion transistors onto a chip roughly the size of a fingernail. According to IBM, this is nearly twice the transistor density of its 2-nanometer chip introduced in 2021.

IBM said the new design can deliver up to 50 per cent better performance or 70 per cent higher energy efficiency than its earlier 2-nanometer technology. The company believes the breakthrough will help meet the growing computing demands of AI systems while reducing power consumption in data centres and high-performance computers.

A key innovation behind the chip is IBM’s new Nanostack architecture, which stacks transistors vertically instead of relying only on shrinking them horizontally. This approach enables more computing power to be packed into a smaller space, helping overcome the physical limits that have slowed traditional chip miniaturisation in recent years.

The technology is still at the research stage and is not yet ready for commercial production. IBM expects it could take around five years before the chip reaches large-scale manufacturing through industry partners. The company no longer manufactures chips itself but licenses its technology to semiconductor firms.

While consumers are unlikely to see products using the new technology anytime soon, IBM’s announcement highlights how chipmakers are continuing to push the boundaries of semiconductor design. If successfully commercialised, the sub-1 nanometer technology could help power faster smartphones, more capable AI systems, energy-efficient data centres and the next generation of computing devices.

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Corporate

IBM settles US case over DEI practices

IBM has agreed to pay $17 million to settle a case brought by the U.S. Department of Justice over its diversity, equity and inclusion (DEI) practices.

The settlement resolves allegations that the company used hiring and promotion policies that considered factors such as race, gender, and national origin in ways that violated federal anti-discrimination rules tied to government contracts. The DOJ also claimed that some DEI-related programs and bonuses were linked to diversity targets.

IBM has denied any wrongdoing, and the settlement does not include an admission of liability. The company said it was pleased to resolve the matter and reiterated that its hiring approach is based on skills and business needs.

The case is part of a wider crackdown by U.S. authorities on corporate DEI programmes, particularly within companies that receive federal funding or work on government contracts. Officials have argued that such programmes must comply strictly with anti-discrimination laws.

As part of the resolution, IBM has agreed to pay the penalty and make changes to certain internal practices. The government said the case was handled under a civil rights enforcement initiative aimed at ensuring compliance with federal rules.

The settlement marks one of the more high-profile actions involving a major technology company and highlights growing legal and political scrutiny around DEI policies in corporate America.

While IBM maintains that it acted lawfully, the case underscores how companies are increasingly being required to reassess workplace diversity initiatives to align with evolving regulatory expectations.

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