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IBM Falls as Legacy Business Weighs Ahead of Split

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By Dhirendra Tripathi

Investing.com – IBM stock (NYSE:IBM) fell nearly 5% in Thursday’s premarket trading as a weak showing by the company’s legacy business of infrastructure management kept third-quarter sales and profit numbers below estimates.

The computing giant is spinning off the global technology services unit that houses the business as clients have moved to the Cloud. That has caused the unit's margins to shrink over the years.

The company expects to wrap up the separation of Kyndryl, the name the business will have after the exercise, in the next two weeks. But for Kyndryl, IBM’s quarterly revenue would have been higher, driven by growth in high-margin consulting, software and Cloud offerings.

"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 told Reuters.

Third-quarter revenue at Kyndryl fell around 5% to $6.15 billion. The separation will take between $2 and $3 billion off IBM's fourth-quarter consolidated revenue, Chairman and CEO Arvind Krishna said.

Demand in the systems business, housing IBM's mainframe computers, dropped too as the end of the product cycle neared. Revenue in the segment fell 12% to $1.1 billion.

The consulting business grew a strong 16% and Cloud revenue was 37% higher. Overall, the global business services, housing consulting and Cloud offerings expanded by 11% to $4.4 billion.

Cognitive software – comprising Red Hat, security and automation – grew 2% to $5.7 billion.

Revenue rose 0.3% to $17.6 billion. Adjusted operating profit fell 1% to $2.3 billion.

Talking about the ongoing quarter, Krishna said software revenue growth rate should improve over the third quarter while consulting should again see double-digit revenue growth.

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