Out with the old: IBM mainframe sales slump, while ServiceNow revenues grow

IBM files net loss as ServiceNow reports 22% growth in Q3

IBM logs revenue $100 million below expectations, while ServiceNow points to AI.

IBM’s mainframe upgrade cycle drew to a juddering halt in the third quarter as sales of the z16, introduced in 2022, fell by 19%. Overall, IBM revenues inched ahead by just 1% to $14.97 billion, with the company filing a quarterly net loss of $330 million.

IBM CEO Arvind Krishna cited a number of reasons for the sub-par results, including economic uncertainty, geopolitical issues, pre-election jitters in the US, and “the changing landscape of interest rates and inflation levels.”

Mainframe revenues had been expected to level off and start falling following the introduction of the z16 series in 2022, with the typical pattern of strong upgrade sales giving way to a long tail of lower revenues until the next generation of machines are introduced. Overall, the company’s revenues came in $100 million under expectations.

Regardless, the company generated net cash flow of $2.9 billion, which James Kavanaugh, IBM senior vice president and chief financial officer, pledged to return to investors in the form of dividends, as well as new investments in growth areas.

Indeed, positive areas for IBM included software sales growth, up 9.7% to $6.5 billion, with Red Hat sales increasing by 14%.

In IBM Consulting, once the big driver of growth at IBM, revenues were flat, but net income was up by 11% thanks to “productivity actions”. For that, read: reducing headcount.

Overall revenues were up by 3% through the first nine months of the year, but profitability will improve in the fourth quarter, according to Krishna, as the company drives up savings/productivity actions from $3 billion for the year to $3.5 billion.

While IBM’s perennial struggles continue, ServiceNow reported 22% year-on-year revenue growth and raised revenue guidance for the year on the back of subscription sales - up by more than one-fifth.

ServiceNow, which pitches itself as “the AI platform for business transformation”, reported quarterly net income at $432 million.

“This remarkable momentum stems from both existing and new customers doubling down on their investments in ServiceNow... The mandate to put AI to work for people represents a generational technology shift. We have never been more confident in ServiceNow’s team, our platform, and our position as the ultimate growth company in enterprise software,” said CEO Bill McDermott.

CFO Gina Mastantuono described the third quarter results as “spectacular”, adding that they had been primarily driven by robust demand for the Now Platform.