By Adriano Marchese

International Business Machines shares fell after disappointing third-quarter performance in two of its most critical business segments, Red Hat and transaction-processing platforms.

Shares fell 4% to $275.82, a recovery from lows of $263.56 closer to the open.

IBM late Wednesday reported about a 10% rise in third-quarter software revenue to $7.21 billion, in line with Wall Street expectations. The Armonk, N.Y., technology company's hybrid-cloud revenue, which includes Red Hat, rose in the quarter but at a slower clip than in the previous quarter, while TPP revenue fell 1%, compared with a 1% uptick in the second quarter.

Melius analyst Ben Reitzes noted in a report that these segments are a big focus for investors. Red Hat and TPP form the backbone of IBM's strategy to bridge traditional enterprise information technology with modern cloud innovation, he said.

"We understand there will be frustration here in Software since Red Hat tends to support the stock and the miss came as a surprise," Reitzes said.

Despite this, the analyst thinks the segments are still in good shape. "Profit metrics are better, Red Hat and [artificial intelligence] bookings are solid and TPP can pick up, making the case for improvement compelling," Reitzes added, pointing out that Red Hat growth in bookings is still trending above revenue at 20%.

Total revenue for the quarter rose 9.1% to $16.33 billion, ahead of the $16.09 billion analysts expected, according to FactSet. The company also logged a profit of $1.74 billion, or $1.84 a share, in the quarter ended Sept. 30, from a loss of $330 million, or 36 cents a share, a year earlier.

Write to Adriano Marchese at adriano.marchese@wsj.com

(END) Dow Jones Newswires

October 23, 2025 10:28 ET (14:28 GMT)

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