Net income rose 25.6% to $2.19B, but pre-tax income grew only 2.8%; the year-earlier tax line carried a one-time H.R 4. 1 charge. Software, helped by Confluent, carried growth; Consulting did not. The report gives no outlook.
International Business Machines Corporation · Q3 2026 · Reported 21 Oct 2026 · US
Key figures
Billion USD | Q3 2026 | Q3 2025 | Change |
|---|---|---|---|
Revenue | 17.10 | 16.33 | +4.7 % |
Gross profit | 9.71 | 9.36 | +3.8 % |
Pre-tax income | 2.50 | 2.43 | +2.8 % |
Net income | 2.19 | 1.74 | +25.6 % |
Diluted EPS | 2.30 USD/share | 1.84 USD/share | +25.0 % |
Gross margin | 56.8 % | 57.3 % | -0.5 pp |
Pre-tax margin | 14.6 % | 14.9 % | -0.3 pp |
Net margin | 12.8 % | 10.7 % | +2.1 pp |
Figures in USD, as reported. Margins are computed from the reported lines.
Net income growth mostly reflects a lighter tax line, not operating leverage
Revenue rose 4.7% to $17.1B and pre-tax income from continuing operations rose 2.8% to $2.5B, so pre-tax margin slipped to 14.6% from 14.9% a year earlier 4723. The tax provision fell to $298M from $686M, and the year-earlier figure included a one-time, non-cash charge from the enactment of H.R 4. 1 47. That is why net income rose 25.6% to $2.19B and diluted EPS rose 25.0% to $2.30; a 0.5% higher diluted share count explains why EPS grew slightly less than net income 4.
On the company-defined operating (non-GAAP) basis, which excludes acquisition-related charges and non-operating retirement costs, pre-tax income rose 8.7% and margin rose 0.7 points to 19.3% 7. Operating earnings per share were $2.95 against $2.65 5. Gross margin fell 0.5 points to 56.8%, and the operating measure fell 0.2 points to 58.5% (non-GAAP) 7.
Software drove growth, but Confluent and slipped deals flatter the comparison
Software revenue rose 8.2% to $7,804M (8.7% adjusted for currency), and segment profit margin rose 2.1 points to 35.0% even as gross margin fell 0.6 points to 82.5% 1419. Management attributes the growth to strong new business including Confluent, and to closing a significant portion of large deals that failed to close in the second quarter 17. Data grew 19.1%, which management ties to Confluent, while Automation fell 3.3% 16.
Annual recurring revenue of $24.9B rose about $2B, which management says reflects the Confluent acquisition and growth elsewhere 18. The report does not give Software growth excluding acquisitions, so the organic rate is not visible.
Consulting and IBM Z were the soft spots
Consulting revenue was flat as reported ($5,335M) and up 1.8% adjusted for currency 14. Gross margin fell 1.9 points to 27.4% and segment profit fell 4.8% to $653M, which management ties to investments including digital assets for AI 21. Signings fell 3.7% to $5,030M, though trailing-twelve-month book-to-bill was about 1.04 and backlog was $30.2B 2223.
Infrastructure revenue rose 4.2%, with Distributed Infrastructure up 31.3% and IBM Z down 19.6%, which management attributes to product cycle dynamics after the z17 launch 24. Infrastructure segment profit still rose 10.9% 25.
Operating cash flow rose, while nine-month cash fell and debt rose
Operating cash flow was $4.0B in the quarter against $2.19B of net income, up $0.9B from a year earlier, including a $0.2B increase from financing receivables 48. Free cash flow was $3.0B, up $0.7B 8. Year to date, operating cash flow of $11.8B includes a $1.9B increase from financing receivables, and investing outflows of $13.5B include the Confluent purchase 13.
Cash, restricted cash and marketable securities fell $3.4B to $11.1B since December 31, 2025, and debt rose $2.6B to $63.8B 12.
What to watch next
Whether Software sustains growth once the second-quarter deal slippage is absorbed; the report gives no guidance for the next quarter or full year.
Consulting signings fell 3.7% in the quarter; watch whether segment profit, which management ties to AI investments, recovers 22.
Whether the IBM Z decline of 19.6% moderates as the z17 launch from the second quarter of 2025 laps 24.
Sources
Produced by Clarifo Research with the Clarifo financial research engine from the company's public filings. AI was used in parts of the analysis and drafting. Figures are checked automatically against the filings they come from. This is not investment advice.