IBM revenue misses on weakness in legacy infrastructure unit

FILE PHOTO: A man stands near an IBM logo at the Mobile World Congress in Barcelona, Spain, February 25, 2019. REUTERS/Sergio Perez/File Photo

Oct 20 (Reuters) – IBM (IBM.N) on Wednesday missed market estimates for third-quarter revenue as its managed infrastructure business suffered from a decline in orders ahead of a spinoff next month.

The lower-margin, legacy unit provides technical support to IBM’s clients and has shrunk in recent years as companies move to the cloud, becoming a drag on Big Blue’s earnings.

Revenue at the global technology services unit, which houses the business set to be called Kyndryl after the spinoff, fell 4.8% to $6.15 billion in the quarter ended Sept. 30.

The slowdown in sales has prompted 110-year-old IBM to shift focus to hybrid-cloud, an area where it sees a $1 trillion market opportunity, to boost growth and better compete with Inc (AMZN.O) and Microsoft Corp (MSFT.O).

Hybrid-cloud involves enterprises using a combination of their own data centers and leased computing resources to store and process data. Demand has surged for the service during the pandemic from businesses expanding their digital offerings.

IBM’s total revenue rose marginally to $17.62 billion, missing analysts’ average estimate of $17.77 billion, according to Refinitiv data. Revenue growth also suffered due to a near 12% decline at the unit that includes its mainframe computers business.

But revenue adjusted for the Kyndryl separation was 2.5% higher.

The unit that houses IBM’s consulting business grew 11.6% to $4.43 billion as clients spent more and enterprises turned to the company to digitize their operations.

Reporting by Chavi Mehta and Tiyashi Datta in Bengaluru; Editing by Aditya Soni

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