IBM today announced third-quarter 2023 earnings results.

"Technology remains a critical source of competitive differentiation and progress for organizations around the world," said Arvind Krishna, IBM chairman and chief executive officer. "Clients are increasingly adopting our watsonx AI and data platform along with our hybrid cloud solutions to unlock productivity and operational efficiency. This is helping drive solid growth in our software and consulting businesses. As a result, we remain confident in our revenue and free cash flow growth expectations for the full year." 

Third-Quarter Highlights

• Revenue
  - Revenue of $14.8 billion, up 4.6 percent, up 3.5 percent at constant currency
  - Software revenue up 8 percent, up 6 percent at constant currency
  - Consulting revenue up 6 percent, up 5 percent at constant currency
  - Infrastructure revenue down 2 percent, down 3 percent at constant currency

• Profit Margin
  - Gross Profit Margin: GAAP: 54.4 percent, up 1.7 points; Operating (Non-GAAP): 55.5 percent, up 1.6 points
  - Pre-Tax Income Margin: GAAP: 12.7 percent, up 44.6 points; Operating (Non-GAAP): 15.6 percent, up 1.7 points

• Cash Flow
  - Year to date net cash from operating activities of $9.5 billion, up $3.0 billion; free cash flow of $5.1 billion, up $1.0 billion

"Our continued focus on the fundamentals of our business is driving solid revenue growth, profit margin expansion, and strong cash generation," said James Kavanaugh, IBM senior vice president and chief financial officer. "That cash generation has enabled us to increase our investment in R&D and acquisitions, strengthening our future AI and hybrid cloud capabilities, while supporting continued shareholder returns through our dividend."

Segment Results for Third Quarter

• Software — revenues of $6.3 billion, up 7.8 percent, up 6.3 percent at constant currency:
  - Hybrid Platform & Solutions up 8 percent, up 7 percent at constant currency:
     -- Red Hat up 9 percent, up 8 percent at constant currency
     -- Automation up 14 percent, up 13 percent at constant currency
     -- Data & AI up 6 percent
     -- Security down 2 percent, down 3 percent at constant currency
  - Transaction Processing up 7 percent, up 5 percent at constant currency

• Consulting — revenues of $5.0 billion, up 5.6 percent, up 5.0 percent at constant currency:
  - Business Transformation up 6 percent, up 5 percent at constant currency
  - Technology Consulting up 2 percent, up 1 percent at constant currency
  - Application Operations up 7 percent

• Infrastructure — revenues of $3.3 billion, down 2.4 percent, down 3.2 percent at constant currency:
  - Hybrid Infrastructure up 1 percent, flat at constant currency
     -- IBM zSystems up 9 percent
     -- Distributed Infrastructure down 4 percent, down 6 percent at constant currency
  - Infrastructure Support down 6 percent, down 7 percent at constant currency

• Financing — revenues of $0.2 billion, up 6.9 percent, up 5.1 percent at constant currency

Cash Flow and Balance Sheet
In the third quarter, the company generated net cash from operating activities of $3.1 billion, up $1.2 billion year to year. Net cash from operating activities excluding IBM Financing receivables was $2.0 billion. IBM's free cash flow was $1.7 billion, up $0.9 billion year to year. The company returned $1.5 billion to shareholders in dividends in the third quarter.

For the first nine months of the year, the company generated net cash from operating activities of $9.5 billion, up $3.0 billion year to year. Net cash from operating activities excluding IBM Financing receivables was $6.3 billion. IBM's free cash flow was $5.1 billion, up $1.0 billion year to year.

IBM ended the third quarter with $11.0 billion of cash and marketable securities, up $2.2 billion from year-end 2022. Debt, including IBM Financing debt of $9.9 billion, totaled $55.2 billion, up $4.3 billion since the end of 2022.

Full-Year 2023 Expectations

• Revenue: The company continues to expect constant currency revenue growth of three percent to five percent. At current foreign exchange rates, currency is expected to be about a one-point headwind to revenue growth.
• Free cash flow: The company continues to expect about $10.5 billion in free cash flow, up more than $1 billion year to year.