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IBM Matches Estimates as Cloud Growth Partly Offsets Legacy Declines

IBM was able to match earnings estimates with a slight revenue beat in the third quarter.
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IBM posted financial results in line with analyst estimates Monday after the closing bell as growth in its cloud offerings continued even as overall revenue slipped again.

IBM reported revenue of $17.6 billion, a 2.6% decline from the year earlier period, with earnings of $2.58 per share. Analysts were expecting the company to report revenue of $17.54 billion with earnings of $2.58 per share. 

It is the third consecutive quarter that IBM has reported declining revenue. 

"The strong performance of our cloud business, led by Red Hat, underscores the growing client adoption of our open hybrid cloud platform," said CEO Arvind Krishna. 

Total cloud revenue rose 19% year over year in the quarter to $6 billion. Over the past 12 months, cloud revenue is up 22% with its Red Hat business seeing revenue increase 17%.

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Cloud revenue in the company's Cloud and Cognitive Software segment rose 7% to $5.6 billion while Global Business Services, which includes the company's legacy mainframe hardware and software business, revenue fell 5% to $4 billion.

The company's operating gross margin increased 160 basis points from a year ago to 49%. The company generated $1.1 billion in free cash flow in the quarter while returning $1.5 billion to shareholders through dividends. 

Last week, IBM announced that it would spin off its infrastructure division and concentrate its focus on hybrid cloud growth. 

"Separating the managed infrastructure services business creates a market-leading standalone company and further sharpens our focus on IBM’s open hybrid cloud platform and AI capabilities. This will accelerate our growth strategy and better position IBM to seize the $1 trillion hybrid cloud opportunity," Krishna said in the release. 

Shares of IBM fell about 1% in after-hours trading.