IBM International Business Machines Corp

By Rachael King 

Profit and revenue at International Business Machines Corp. declined, with the top line edging lower to mark its 18th consecutive fall. Still, the company saw growth in newer businesses such as cloud computing and artificial intelligence.

The Armonk, N.Y., company reported third-quarter earnings Monday, saying revenue for the quarter was $19.23 billion, down 0.3%, as the company has attempted to transition into new lines of business while its core products become increasingly pressured by the move to computing services delivered over the internet.

Big Blue said net profit fell 4% to $2.9 billion during the quarter ended in September amid weakness in its systems segment, which includes mainframe computer hardware and operating-system software.

"In the third quarter, we're at the back end of the mainframe [sales] cycle, so we'd expect it to be down," said Martin Schroeter, IBM senior vice president and chief financial officer in an interview.

Shares of the company fell 3.19% to $149.84 in after-hours trading.

Alongside falling revenue in some older lines of business, revenue from cloud services across all IBM business segments grew 42% in constant currency to $3.4 billion, Mr. Schroeter said. Those cloud services include SoftLayer, which sells access to computing capacity over the internet, and Bluemix, which sells access to software over the web, among other things. The cloud business during the quarter added new customers including Dixons Carphone Group, JFE Steel Co., Ltd. and Vodafone India.

Cloud computing is one of several faster-growing areas that IBM calls strategic imperatives. Those businesses, which also include artificial intelligence, data analytics and security, grew 15% in constant currency during the third quarter compared with 12% during the second quarter. They now represent 40% of IBM's overall business.

"As long as we keep seeing growth in strategic imperatives, people should be happy," said Greg McDowell, analyst at JMP Securities.

IBM has invested heavily in such businesses. It spent $5.45 billion on acquisitions during the first nine months of the year, compared with $821 million during the same period a year earlier. It has bought 12 companies to spur growth in industry-specific businesses.

In some cases, it has combined these acquisitions with its artificial intelligence software known as Watson to create new offerings. For example, its acquisition of Promontory Financial Group, announced Sept. 29, will combine the risk management and regulatory compliance consulting firm with Watson's abilities to learn from past data and to respond to natural-language to help financial services firms wade through tens of thousands of regulatory changes described in millions of pages of records each year.

"We'll continue to run the business of consulting as we always do, but the consultants will help train and put the wisdom and knowledge of that understanding into Watson," said Bridget van Kralingen, senior vice president of IBM Global Industry Platforms, in an interview.

This is similar to what IBM has done with Watson in the field of oncology, helping hospitals to better match cancer patients to clinical trials.

Acquisitions were expected to add an estimated $360 million to revenue during the quarter, compared with the year-earlier period, according to Toni Sacconaghi, an analyst at Bernstein Research.

Wall Street analysts had expected revenue of $19 billion for the quarter, according to Thomson Reuters.

Excluding charges, per-share earnings totaled $3.29. Analysts had expected adjusted earnings of $3.23 a share, according to Thomson Reuters.

For the year, the company backed its forecast for per-share operating earnings of at least $13.50 a share.

Write to Rachael King at rachael.king@wsj.com

(END) Dow Jones Newswires

October 18, 2016 02:48 ET (06:48 GMT)

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