Nov 4 (Reuters) - Kyndryl Holdings KD.N reported a slight drop in second-quarter revenue on Tuesday, as the former IBM IBM.N unit works to reduce and renegotiate inherited contracts that have hampered margins.

The company, formerly IBM's infrastructure services business, has been restructuring several no-margin contracts it inherited from Big Blue to generate higher profits, but at the cost of revenue growth.

The sales decline reflects "progress in reducing inherited no-margin and low-margin third-party content in customer contracts, as well as longer sales cycles," the company said in a statement.

Its second-quarter sales fell about 1% to $3.72 billion. At the same time, it recorded a net income of $68 million for the September quarter, compared with a year-ago loss of $43 million.

Kyndryl's software services help businesses conduct day-to-day operations and enable artificial intelligence integration.

The company reaffirmed its forecasts for the fiscal year which ends in March 2026, still expecting constant-currency revenue growth of 1%.

Sales in the second half of the year are expected to outpace the first, driven by factors including growth in its consulting segment and revenue linked to large cloud providers, the company said.

An ongoing transition to artificial intelligence has lifted infrastructure software demand across industries, potentially benefiting Kyndryl.

Kyndryl is set to exceed its initial target to derive $1.8 billion in hyperscaler-linked revenue this fiscal year and sales tied to these cloud providers grew 65% to $440 million in the second quarter, it said.

(Reporting by Arsheeya Bajwa; Editing by Tasim Zahid)

((ArsheeyaSingh.Bajwa@thomsonreuters.com; +91 8510015800;))