Third quarter 2026
Filed Oct 21, 2026IBM reported third-quarter revenue of $17.1 billion, up 5 percent, with operating (non-GAAP) diluted earnings per share of $2.95 and free cash flow of $3.0 billion; it maintained its full-year constant-currency revenue-growth outlook and raised its free-cash-flow outlook.
Revenue growth accelerated to 5 percent, led by Software and Infrastructure, while GAAP and operating pre-tax income rose and third-quarter free cash flow increased by $0.7 billion year to year. Consulting was flat, gross margins declined, and cash declined from year-end while acquisition spending and debt increased.
Key metrics
shortened, hover for the filing’s print| Metric | Value | q/q | y/y |
|---|---|---|---|
| Third-quarter total revenueGAAP | $17.1B | – | 5 percent |
| Nine-month total revenueGAAP | $50.18B | – | 5 % |
| Third-quarter gross profitGAAP | $9.7B | – | 4 percent |
| Third-quarter gross profit marginGAAP | 56.8 percent | – | down 50 basis points |
| Nine-month gross profitGAAP | $28.57B | – | – |
| Nine-month total gross profit marginGAAP | 56.9 % | – | – |
| Third-quarter pre-tax income from continuing operationsGAAP | $2.5B | – | 3 percent |
| Third-quarter pre-tax income marginGAAP | 14.6 percent | – | down 30 basis points |
| Nine-month pre-tax income from continuing operationsGAAP | $6.36B | – | – |
| Nine-month pre-tax income marginGAAP | 12.7 % | – | – |
| Third-quarter income from continuing operationsGAAP | $2.2B | – | 26 percent |
| Third-quarter net incomeGAAP | $2.2B | – | 26 percent |
| Nine-month income from continuing operationsGAAP | $5.58B | – | – |
| Nine-month net incomeGAAP | $5.57B | – | – |
| Third-quarter diluted earnings per share from continuing operationsGAAP | $2.31 | – | 26 percent |
| Third-quarter total diluted earnings per shareGAAP | $2.30 | – | – |
| Nine-month diluted earnings per share from continuing operationsGAAP | $5.86 | – | – |
| Nine-month total diluted earnings per shareGAAP | $5.85 | – | – |
| Third-quarter effective tax rateGAAP | 11.9 % | – | – |
| Nine-month effective tax rateGAAP | 12.3 % | – | – |
| Third-quarter SG&AGAAP | $4.62B | – | – |
| Third-quarter R&DGAAP | $2.38B | – | – |
| Nine-month SG&AGAAP | $14.69B | – | – |
| Nine-month R&DGAAP | $6.86B | – | – |
| Third-quarter operating gross profitnon-GAAP | $10B | – | 4 percent |
| Third-quarter operating gross profit marginnon-GAAP | 58.5 percent | – | down 20 basis points |
| Third-quarter operating pre-tax income from continuing operationsnon-GAAP | $3.3B | – | 9 percent |
| Third-quarter operating pre-tax margin from continuing operationsnon-GAAP | 19.3 percent | – | up 70 basis points |
| Third-quarter operating income from continuing operationsnon-GAAP | $2.8B | – | 12 percent |
| Third-quarter operating diluted earnings per share from continuing operationsnon-GAAP | $2.95 | – | 11 percent |
| Nine-month operating gross profitnon-GAAP | $29.38B | – | – |
| Nine-month operating gross profit marginnon-GAAP | 58.6 % | – | – |
| Nine-month operating pre-tax income from continuing operationsnon-GAAP | $8.71B | – | – |
| Nine-month operating pre-tax margin from continuing operationsnon-GAAP | 17.4 % | – | – |
| Nine-month operating income from continuing operationsnon-GAAP | $7.42B | – | – |
| Nine-month operating diluted earnings per share from continuing operationsnon-GAAP | $7.79 | – | – |
| Third-quarter adjusted EBITDAnon-GAAP | $ 4.9 | – | $ 0.3 |
| Third-quarter adjusted EBITDA marginnon-GAAP | 28.7 % | – | 0.6pts |
| Nine-month adjusted EBITDAnon-GAAP | $ 13.7 | – | $ 1.0 |
| Nine-month adjusted EBITDA marginnon-GAAP | 27.2 % | – | 0.8pts |
| Third-quarter net cash provided by operating activitiesGAAP | $4.03B | – | up $0.9 billion year to year |
| Third-quarter free cash flownon-GAAP | $3.03B | – | up $0.7 billion year to year |
| Nine-month net cash provided by operating activitiesGAAP | $11.79B | – | up $2.6 billion year to year |
| Nine-month free cash flownon-GAAP | $7.79B | – | up $0.6 billion year to year |
| Cash, restricted cash and marketable securities at September 30, 2026GAAP | $11.1B | – | down $3.4 billion from year-end 2025 |
| Debt at September 30, 2026GAAP | $63.8B | – | up $2.6 billion year to date |
Segments
| Segment | Revenue | q/q | y/y |
|---|---|---|---|
| SoftwareHybrid Cloud (Red Hat) was up 11 percent; Data was up 19 percent, up 20 percent at constant currency; Transaction Processing was up 9 percent, up 10 percent at constant currency; Automation was down 3 percent. | $7.8B | – | up 8 percent, up 9 percent at constant currency |
| ConsultingStrategy and Technology was up 2 percent, up 4 percent at constant currency. Intelligent Operations was down 2 percent and flat at constant currency. | $5.3B | – | flat, up 2 percent at constant currency |
| InfrastructureHybrid Infrastructure was up 8 percent, up 9 percent at constant currency, and Distributed Infrastructure was up 31 percent, up 32 percent at constant currency. IBM Z was down 20 percent, Infrastructure Support was down 3 percent. | $3.7B | – | up 4 percent, up 5 percent at constant currency |
| FinancingNo further driver was provided. | $200M | – | down 4 percent, down 3 percent at constant currency |
| OtherNo further driver was provided. | $ 66 | – | – |
Amounts quoted below without a unit are in millions, as in the filing’s tables. Per-share figures are as printed.
Full-Year 2026 Expectations outlook
- Revenueconstant currency revenue growth in the range of four-to-five percent
- NoteAt current foreign exchange rates, currency is expected to be neutral to growth for the year
- Notefree cash flow to increase by more than $1 billion year-over-year
Capital returns
- The company returned $1.6 billion to shareholders in dividends in the third quarter.
- Cash dividends paid were $ 1,596 for the three months ended September 30, 2026 and $ 4,762 for the nine months ended September 30, 2026.
- Common stock repurchases for tax withholdings were $ 352 for the three months ended September 30, 2026 and $ 817 for the nine months ended September 30, 2026.
- The IBM board of directors approved a regular quarterly cash dividend of $1.69 per common share, to stockholders of record on November 10, 2026.
- The dividend payment date is December 10, 2026.
What drove it
- Total revenue was up 5 percent, or up 6 percent at constant currency.
- Software revenue was up 8 percent, or up 9 percent at constant currency.
- Infrastructure revenue was up 4 percent, or up 5 percent at constant currency.
- Operating pre-tax income was up 9 percent and operating pre-tax margin was up 70 basis points.
- Third-quarter adjusted EBITDA margin was 28.7 %, compared with 28.0 % in the prior-year quarter.
- Management cited demand across the portfolio, operational execution and productivity initiatives.
Concerns
- Consulting revenue was flat, although it was up 2 percent at constant currency.
- GAAP gross profit margin was down 50 basis points to 56.8 percent and operating gross profit margin was down 20 basis points to 58.5 percent.
- IBM Z revenue was down 20 percent, or down 19 percent at constant currency.
- Automation revenue was down 3 percent, Infrastructure Support revenue was down 3 percent, and Financing revenue was down 4 percent.
- Cash, restricted cash and marketable securities were down $3.4 billion from year-end 2025, while debt was up $2.6 billion year to date.
- The company invested $11.4 billion in acquisitions this year.
What to watch
- Whether Software maintains growth following 8 percent third-quarter revenue growth and 11 percent Hybrid Cloud (Red Hat) growth.
- Whether Consulting improves from flat reported revenue growth.
- The trajectory of IBM Z after a 20 percent revenue decline in the third quarter.
- Gross-margin performance after the 50-basis-point decline in GAAP gross profit margin.
- Full-year delivery against constant-currency revenue growth in the range of four-to-five percent and free-cash-flow growth of more than $1 billion year over year.
- Cash, debt and acquisition integration following $11.4 billion invested in acquisitions this year.
Balance sheet and cash flow
- Third-quarter net cash provided by operating activities was $ 4,025, compared with $ 3,081 in the prior-year quarter.
- Third-quarter free cash flow was $ 3,027, compared with $ 2,373 in the prior-year quarter.
- Nine-month net cash provided by operating activities was $ 11,791, compared with $ 9,153 in the prior-year period.
- Nine-month free cash flow was $ 7,787, compared with $ 7,181 in the prior-year period.
- Cash and cash equivalents were $ 9,233, restricted cash was $ 48, and marketable securities were $ 1,825 at September 30, 2026.
- Total assets were $ 155,011 and total liabilities were $ 118,805 at September 30, 2026.
- Short-term debt was $ 7,013 and long-term debt was $ 56,804 at September 30, 2026.
- The company invested $11.4 billion in acquisitions this year.
- Acquisition of businesses, net of cash acquired, was $ 11,364 for the nine months ended September 30, 2026.
- Capital expenditures, net, were $ 457 in the third quarter and $ 1,200 for the first nine months of 2026.
Analysis
IBM reported third-quarter revenue of $17.1 billion, up 5 percent, or up 6 percent at constant currency. Software revenue rose 8 percent and Infrastructure revenue rose 4 percent, while Consulting was flat on a reported basis. Software growth included an 11 percent increase in Hybrid Cloud (Red Hat), 19 percent growth in Data and 9 percent growth in Transaction Processing. Infrastructure growth was supported by Hybrid Infrastructure and Distributed Infrastructure, but IBM Z declined 20 percent.
Profit performance was mixed across the reported measures. GAAP gross profit margin declined 50 basis points to 56.8 percent and operating gross profit margin declined 20 basis points to 58.5 percent. GAAP pre-tax income rose 3 percent to $2.5 billion, while operating pre-tax income increased 9 percent to $3.3 billion and operating pre-tax margin expanded 70 basis points to 19.3 percent. GAAP income from continuing operations rose 26 percent to $2.2 billion, and operating diluted earnings per share rose 11 percent to $2.95.
Cash generation improved. Third-quarter net cash provided by operating activities was $4.0 billion, up $0.9 billion year to year, and free cash flow was $3.0 billion, up $0.7 billion year to year. For the first nine months, net cash provided by operating activities was $11.8 billion and free cash flow was $7.8 billion. IBM also reported third-quarter adjusted EBITDA of $4.9 billion and an adjusted EBITDA margin of 28.7 percent, compared with 28.0 percent in the prior-year quarter.
Capital allocation included $1.6 billion returned through dividends in the quarter and cash dividends paid of $4.8 billion in the first nine months. IBM invested $11.4 billion in acquisitions this year. Cash, restricted cash and marketable securities ended the quarter at $11.1 billion, down $3.4 billion from year-end 2025, while debt totaled $63.8 billion, up $2.6 billion year to date.
IBM maintained its expectation for full-year constant-currency revenue growth in the range of four-to-five percent and expects currency to be neutral to growth at current foreign exchange rates. The company raised its cash outlook, now expecting free cash flow to increase by more than $1 billion year over year. The central reported execution points are sustained Software growth, the recovery in Infrastructure, flat Consulting revenue, lower gross margins and the cash and debt effects of acquisition activity.
Management, verbatim
Disciplined execution throughout the quarter drove accelerated revenue growth and strong free cash flow. Our clients are now deploying Super Intelligence in ways that transform entire operating models, instead of simply addressing narrow or novel problems. IBM's technology and expertise are helping organizations drive growth and serve customers with greater speed, precision and efficiency than ever before,
Arvind Krishna, IBM chairman, president and chief executive officer
Demand across our portfolio combined with strong operational execution led to accelerated growth and solid operating pre-tax margin expansion in the quarter,
James Kavanaugh, IBM senior vice president and chief financial officer
Not in the filing
stated, not guessed- The previous release outlook was not provided, so no comparison of actual results with prior guidance is available.
- GAAP operating income and non-GAAP operating income were not reported as line items.
- Full-year revenue guidance in dollars was not reported.
- Full-year gross-margin, operating-expense and tax-rate guidance was not reported.
- A regular common-stock repurchase amount was not reported; the filing reported common stock repurchases for tax withholdings.
- Prior-quarter comparisons for the reported third-quarter metrics were not reported.
Written by an AI language model from the company’s SEC earnings filing (Form 8-K Item 2.02, or Form 6-K for a foreign private issuer). Every figure was checked against the filing text, and a metric whose value, prior period and change do not add up is dropped from the metrics. The model can still misread a table, in the metrics or in the text, so check a number in the filing before you rely on it. Consensus estimates, price targets and share-price reactions are not shown because they are not in the filing. AI-generated research, not investment advice.