IBM posts better than expected Q3 revenue

IBM posted an above expectation third-quarter revenue, aided by company's growing cloud and analytics business.

The software company reported third-quarter earnings of $2.9 billion, or $2.98 a share, on revenue of $19.2 billion, flat with a year ago. Non-GAAP earnings for the third quarter were $3.29 a share. Wall Street was expecting IBM to report third-quarter earnings of $3.23 a share on a non-GAAP basis with revenue of $19 billion.

The better-than-expected show has been attributed to CEO Ginni Rometty‘s changed focus to profitable areas, such as cloud services, artificial intelligence, analytics, and security while trimming its traditional hardware and services businesses.

Revenue from those areas, which the company calls "strategic imperatives," rose 16 percent to $8 billion in the third quarter. Cloud revenue jumped 44 percent compared with a 30 percent rise in the second quarter, it said.

IBM has also made some crucial acquisitions in this area including The Weather Company and Truven Health, spending $5.45 billion so far this year. Perhaps the biggest takeaway from IBM's report is that its cloud as a service revenue run rate is $7.5 billion.

IBM's operating gross margin fell 2.1 percentage points to 48 percent in the quarter, as a result of higher investments in the company's cloud business and the shift to a subscription-based as-a-service model. IBM's systems unit also struggled as revenue fell 21 percent in the third quarter to $1.6 billion. IBM said that Systems revenue reflected the mainframe product cycle and storage are shifting to software defined.

The company maintained its full-year adjusted earnings forecast of at least $13.50 per share.