By Chavi Mehta
(Reuters) -IBM on Wednesday missed market estimates for quarterly revenue as its managed infrastructure business suffered from a decline in orders ahead of a spinoff next month, sending its shares down 4% in extended trading.
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.
“As we issued the effective date for the spin-off of our managed infrastructure business, our clients paused all new project activities at the end of September and that impacted us here,” Chief Financial Officer James Kavanaugh said in an interview.
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 third quarter ended Sept. 30.
Kavanaugh also said demand dropped at the company’s systems business, home to IBM’s mainframe computers, as the end of the product cycle neared, driving a 12% fall in the unit’s revenue.
The slowdown in the legacy business 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 Amazon.com Inc and Microsoft Corp.
“Post separation, it’s a higher growth profile, new IBM,” Kavanaugh said.
IBM’s revenue adjusted for the Kyndryl separation was 2.5% higher, helped in part by stronger demand for the its consulting services from enterprises digitizing their operations during the COVID-19 pandemic.
Total revenue rose marginally to $17.62 billion, missing analysts’ average estimate of $17.77 billion, according to Refinitiv data.
(Reporting by Chavi Mehta and Tiyashi Datta in Bengaluru; Editing by Aditya Soni)
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