International Business Machines Corporation
IBM · NYSE
Next quarter
Expected to report Jan 27, 2027 — estimated from last year’s reporting date.
Consensus is $4.63 EPS for Dec 2026 across 7 estimates, ranging $4.56 to $4.73.
IBM Sep 2026
- 2.43%
- +0.26%
- $2.88
- $2.95
- —
- $17.10B
Reported results
- $17.10B
- 56.80%
- $2.19B
- $2.30
Highlights
- Revenue and EPS: Q3 revenue was $17.1 billion, up 5% year over year (6% at constant currency); operating EPS of $2.95 beat the $2.88 consensus by 2.43%.
- Software growth: Software revenue rose 8% (9% at constant currency) to $7.8 billion, led by Data up 19% and Hybrid Cloud up 11%; software ARR was $24.9 billion, about $2 billion higher year over year.
- Cash generation: Free cash flow was $3.0 billion, up $0.7 billion year over year; operating cash flow was $4.0 billion, up $0.9 billion.
- Operating performance: Operating pre-tax margin expanded 70 basis points to 19.3%, and operating diluted EPS increased 11% to $2.95. GAAP gross margin declined 50 basis points to 56.8%.
- Other segments: Infrastructure revenue increased 4% (5% at constant currency) to $3.7 billion, while Consulting was flat as reported and up 2% at constant currency to $5.3 billion.
- Full-year outlook: IBM maintained its 4–5% constant-currency revenue-growth expectation and raised its free-cash-flow outlook to an increase of more than $1 billion year over year.
- Acquisitions and balance sheet: IBM invested $11.4 billion in acquisitions year to date; cash, restricted cash and marketable securities were $11.1 billion, down $3.4 billion from year-end, while debt was $63.8 billion, up $2.6 billion.
Analysis
IBM delivered 5% reported revenue growth to $17.1 billion, or 6% at constant currency, with operating EPS of $2.95 exceeding the $2.88 consensus by 2.43%. Revenue growth accelerated, led by Software and Infrastructure. The quarter was broadly steady sequentially: revenue was slightly below Q2’s $17.16 billion, while net income edged up to $2.19 billion from $2.17 billion and GAAP diluted EPS rose to $2.30 from $2.27. Against Q3 2025, revenue increased from $16.33 billion; GAAP net income rose from $1.74 billion and GAAP diluted EPS from $1.84. The GAAP earnings comparison benefited from a lower tax provision, as the year-ago quarter included a one-time tax charge; operating EPS growth was 11%, a clearer view of underlying earnings momentum.
Software was the principal growth engine, supported by strong Data and Hybrid Cloud results, Confluent and the closing of deals delayed from Q2. Cash generation also strengthened: quarterly free cash flow rose $0.7 billion year over year to $3.0 billion. IBM kept its full-year constant-currency revenue-growth range at 4–5% but raised its free-cash-flow outlook to growth of more than $1 billion year over year. Consulting remained subdued, with essentially flat reported revenue and lower segment profit.
Software-led growth
Software revenue reached $7.8 billion, up 8.2% as reported and 8.7% at constant currency. IBM attributed the increase to new business, including Confluent, stronger pipeline closures after large deals slipped from Q2, and growth in its recurring-revenue base, which represents about 80% of Software revenue. The quarter’s strong Data contribution was specifically linked to Confluent, acquired in March.
- Hybrid Cloud: Revenue increased 10.6% as reported (11.1% at constant currency); OpenShift ARR was approximately $2.4 billion.
- Data: Revenue grew 19.1% as reported (19.6% at constant currency) to $1.7 billion.
- Transaction Processing: Revenue increased 9.3% as reported (9.9% at constant currency), with IBM citing mission-critical demand and large deals that had slipped from Q2.
- Automation: Revenue declined 3.3% as reported (2.9% at constant currency), partly reflecting a strong year-ago comparison.
- Recurring revenue: Software ARR was $24.9 billion, up approximately $2 billion year over year, reflecting Confluent and growth elsewhere in the recurring base.
Earnings and margins
- Operating results: Operating pre-tax income increased 9% to $3.3 billion; operating pre-tax margin expanded 70 basis points to 19.3%. Operating earnings rose 12% to $2.8 billion, and operating diluted EPS increased 11% to $2.95.
- GAAP results: Continuing-operations income was $2.2 billion, up 26% from $1.7 billion a year earlier; diluted EPS from continuing operations was $2.31 versus $1.84. The effective tax rate fell to 11.9% from 28.2%, with the prior-year quarter including a one-time tax charge related to U.S. tax reform.
- Margin pressure: GAAP gross margin fell 50 basis points to 56.8%, while operating gross margin decreased 20 basis points to 58.5%. IBM cited innovation investment and product mix; operating pre-tax margin nevertheless improved.
- Sequential context: Versus Q2 FY2026, revenue dipped from $17.16 billion to $17.10 billion, while net income rose from $2.17 billion to $2.19 billion and GAAP diluted EPS increased from $2.27 to $2.30.
Consulting and infrastructure
- Consulting: Revenue was $5.3 billion, up 0.2% as reported and 1.8% at constant currency. Strategy and Technology grew 2.1% as reported, while Intelligent Operations declined 2.0%. Segment profit fell 4.8% to $653 million and its margin declined 0.6 points to 12.2%; IBM cited investment in digital assets, partly offset by productivity actions.
- Infrastructure: Revenue increased 4.2% as reported (4.9% at constant currency) to $3.7 billion. Distributed Infrastructure grew 31% and Hybrid Infrastructure revenue rose 8%, while IBM Z declined 20%, consistent with uneven product-cycle performance.
- Financing: Revenue declined 4% to $192 million; segment profit fell 13% to $108 million.
Cash and capital
Operating cash flow was $4.0 billion, up $0.9 billion year over year, and free cash flow was $3.0 billion, up $0.7 billion. For the first nine months, operating cash flow reached $11.8 billion, up $2.6 billion, and free cash flow was $7.8 billion, up $0.6 billion. IBM returned $1.6 billion in dividends during Q3 and declared a quarterly dividend of $1.69 per share. Acquisitions used $11.4 billion of cash year to date; period-end cash, restricted cash and marketable securities totaled $11.1 billion, while debt was $63.8 billion.
Full-year outlook
- Revenue: IBM maintained its expectation for full-year constant-currency revenue growth of 4–5%; at current exchange rates, currency is expected to be neutral to growth.
- Free cash flow: The company now expects free cash flow to increase by more than $1 billion year over year, an improvement to its prior outlook.
