The News: IBM’s Q3 revenue rose by 4.6% to $14.75 billion in the third quarter (Q3) of 2023, beating analyst estimates of $14.73 billion, as IBM reported its latest results for the period ending September 30. IBM also reported non-generally accepted accounting principles (non-GAAP) diluted earnings per share (EPS) of $2.20 for Q3, which beat analyst consensus estimates of $2.13 per share from LSEG, formerly known as Refinitiv. Read the full Q3 2023 earnings press release on the IBM website.
IBM Q3 Revenue Up 4.6% to $14.75 Billion, Beats Analyst Estimates
Analyst Take: IBM’s Q3 earnings numbers again show steady performance progress and excellent operational work this quarter, impressively beating analyst estimates on revenue and EPS. It was a solid beat on both even as challenging macroeconomic conditions continue to affect many tech and consumer companies around the world.
Q3 was Big Blue’s first quarter after unveiling its powerful watsonx generative AI and data platform, which aims to make generative AI adoption more manageable and attainable for a wide range of enterprise users. IBM is seeing more customers adopt watsonx and bring it into their operations to deliver generative AI results to their employees and businesses, and we expect these numbers to continue to grow steadily. The power of generative AI and what it can do to transform businesses and operations is only beginning to be seen, and we are bullish on the capabilities to come. We believe that watsonx will drive broad success for IBM due to its innovations, power, and availability from a trusted and long-term IT partner around the world.
Here are IBM’s Q3 2023 earnings by the numbers:
- Q3 2023 revenue of $14.8 billion, up 4.6% from $14.1 billion year-over-year (YoY). The revenue figure beat consensus estimates of $14.73 billion from analysts at LSEG.
- Q3 2023 non-GAAP net income of $2.0 billion for Q3, up 23% YoY.
- Q3 2023 non-GAAP diluted EPS of $2.20 per share, up 22% YoY, beating analyst estimates of $2.13 per share from LSEG.
- Q3 2023 non-GAAP gross profit of $8.2 billion, up 8% from $7.6 billion YoY.
- Q3 2023 non-GAAP gross profit margin of 55.5%, up from 53.8% YoY.
- Q3 2023 free cash flow (FCF) of $1.7 billion, up from $0.9 billion YoY. For the first 9 months of 2023, IBM’s FCF is $5.1 billion, up $1 billion YoY for the period.
These are impressive numbers, and we are pleased to see healthy expansion in Q3 in FCF and on IBM’s margins as the company continues its strategy to deliver AI, hybrid cloud, and more to its customers in the global marketplace.
IBM’s progress with its Red Hat unit is also continuing its success, garnering a 9% revenue increase in Q3 as it grows its Linux and open source products, expertise, and operations to serve its dedicated enterprise customers.
IBM’s Q3 Revenue by Segment
IBM Q3 revenue by market segment saw sales growth in its software, consulting, and financing units in Q3, but revenue was down in its infrastructure unit, which saw IBM’s Distributed Infrastructure unit revenue down by 4% YoY.
The software unit brought in $6.3 billion in revenue for the quarter, up 8% from $5.8 billion YoY. Revenue in the Hybrid Platform and Solutions unit was up 8% overall, which includes IBM’s Red Hat division, which saw revenue rise by 9%. The Automation division was up 14%, while the Data and AI division was up by 6%. The Security software division saw its revenue fall by 2%, while the transaction processing software division was up by 7%.
The Consulting unit brought in total revenue of $5 billion for Q3, up 6% from $4.7 billion YoY, with its Business Transformation division seeing a 3% revenue increase for the quarter. The Technology Consulting division saw its revenue rise by 2%, while the Application Operations software unit was up by 7%.
IBM’s infrastructure unit brought in total revenue of $3.3 billion, which was down 2.3% from $3.4 billion YoY. The Hybrid Infrastructure unit saw revenue rise by 1% YoY, while IBM Z Systems revenue rose 9%. Distributed Infrastructure was down by 4%, while Infrastructure Support was down by 6%.
Finally, IBM’s Financing unit brought in $200 million in revenue in Q3, up 6.9% YoY.
IBM’s Q3 Earnings Report Reaffirms Full-Year 2023 Expectations
As part of its latest earnings report, IBM also reaffirmed that its previous revenue guidance for the full year 2023 continues to call for expected constant currency revenue growth of 3%-5%. The company said it also continues to expect about $10.5 billion in FCF for the full year, which is up more than $1 billion YoY.
What It Means: IBM Q3 Earnings Overview
IBM’s Q3 numbers are on a positive trend and show us steady growth and continuing confidence from customers. As we see it, this quarter had some notable software and consulting wins and, of course, IBM’s revolutionary work in AI and generative AI with its growing and powerful watsonx product family is going to continue that progress into the future.
We had the chance to talk with IBM Chief Financial Officer James J. Kavanaugh, and he spoke positively about the company’s Q3 operational results as well as his enthusiasm about the strong market response to IBM’s early generally available release of watsonx. Kavanaugh told us that the early successes of watsonx with customers are already contributing to IBM’s AI and generative AI growth numbers. We see this as great news for Big Blue.
What we still would like to see from IBM is for the company to push its FinOps and Observability strategies harder because we see them both as high potential growth areas along with cloud and AI. This push would drive IBM to even greater heights in its financial and market performance, we believe, due to the quality and value of these offerings.
And we would be remiss if we did not again point out that IBM’s positive Q3 results are in large part due to the steady leadership of IBM chairman and chief executive officer Arvind Krishna and his executive team, which continue to guide this company well through the always changing global macroeconomic environment.
We believe that IBM is positioned to broaden its leadership and technology and service products due to its nascent watsonx generative AI and data platform, which will help lead this company across the board. We continue to believe that this approach is a solid strategy for success for IBM as we approach 2024.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
