10-Q · July 22, 2026
IBM delivered Q2 revenue of $17.162 billion, up 1.1% year/year, but GAAP diluted EPS declined to $2.27 from $2.31 as an IBM Z shortfall drove a 7.4% Infrastructure revenue decline. Adjusted earnings were more resilient,…
Earnings analysis · 10-Q
IBM earnings analysis
Filed October 21, 2026 · Our reading of the company's report
The latest report
IBM delivered solid third-quarter execution, with revenue up 4.7% to $17.103 billion, Software growth of 8.2%, operating diluted EPS of $2.95, and free cash flow of $3.0 billion. Profitability improved at the operating…
Read full summary
IBM delivered solid third-quarter execution, with revenue up 4.7% to $17.103 billion, Software growth of 8.2%, operating diluted EPS of $2.95, and free cash flow of $3.0 billion. Profitability improved at the operating level, but GAAP gross margin declined 0.5 points to 56.8%, Consulting margins contracted, and IBM Z revenue fell 19.6%. The balance sheet reflects substantial investment, including $11.364 billion of acquisitions, with debt rising to $63.817 billion and working capital declining to negative $5.293 billion.
Gross and operating margin
How much of each revenue dollar the business keeps.
One point per quarterly or annual filing. Both margins are shares of that report's revenue.
From revenue to operating profit
Where each $100 of revenue went in this report.
Cost of sales, operating expenses, and what remained. Figures are rounded to whole dollars.
Where revenue came from
The business segments reported by the company.
Shares of the segments disclosed in this filing, largest first.
How we read each report
Our analysis across the last few reports.
Our model's reading of each filing, not the share price or the market's reaction. Annual and quarterly reports each occupy one position.
Reported figures
- Earnings per share
- $2.3
What stood out
-
Revenue and earnings accelerated
Third-quarter revenue increased 4.7% year over year to $17.103 billion, while GAAP diluted EPS from continuing operations rose 25.5% to $2.31. Operating diluted EPS was $2.95, up 11.3%.
-
Software growth led by Data and Cloud
Software remained the primary growth engine, with revenue of $7.804 billion, up 8.2%; Data revenue rose 19.1% to $1.738 billion and Hybrid Cloud revenue rose 10.6% to $2.086 billion.
-
Infrastructure profit expanded
Infrastructure revenue grew 4.2% to $3.707 billion and segment profit increased 10.9% to $715 million, lifting segment margin to 19.3% from 18.1%.
-
Cash generation improved
Third-quarter operating cash flow was $4.0 billion and free cash flow was $3.0 billion, increases of $0.9 billion and $0.7 billion, respectively, from the prior-year quarter.
-
Contracted revenue base remains substantial
Remaining performance obligations were approximately $69 billion at September 30, 2026, with approximately 70% expected to be recognized over the subsequent two years.
-
Year-to-date cash flow strengthened
Nine-month operating cash flow reached $11.791 billion and free cash flow was $7.787 billion, while total assets increased to $155.011 billion from $151.880 billion at year-end 2025.
What to watch
-
IBM Z product cycle remains a drag
IBM Z revenue declined 19.6% year over year in the third quarter, despite total Infrastructure revenue growth of 4.2%, reflecting product-cycle dynamics following the z17 launch.
-
Consulting growth and margins weakened
Consulting revenue was essentially flat at $5.335 billion, while gross margin fell 1.9 points to 27.4% and segment profit declined 4.8% to $653 million. Third-quarter Consulting signings also decreased 3.7% to $5.030 billion.
-
Acquisitions increased balance-sheet pressure
Cash and cash equivalents, restricted cash and marketable securities declined $3.364 billion to $11.106 billion, while total debt increased $2.557 billion to $63.817 billion, reflecting acquisition and investment activity.
-
Working capital position weakened
Working capital deteriorated to negative $5.293 billion from negative $1.714 billion at December 31, 2025, and the current ratio declined to 0.85:1 from 0.96:1.
-
Investment spending weighs on margins
R&D expense increased 14.2% year over year to $2.378 billion in the quarter as IBM invested in AI, hybrid cloud and quantum, while gross margin declined 0.5 points to 56.8%.
-
Financing credit mix and profit softened
Approximately 78% of the external Financing portfolio was with investment-grade clients, down 1 percentage point from December 31, 2025; Financing segment profit declined 12.5% to $108 million.
Management's outlook
The 10-Q does not provide explicit numeric revenue or EPS guidance. Management states it plans to invest more than $10 billion in quantum over the next five years and describes confidence in future growth opportunities; prior outlook was addressed in the earnings release and call.
Earlier filings 2
10-Q · April 23, 2026
IBM reported Q1 2026 revenue of $15.917 billion (up 9.5% YoY, 6.1% CC) and GAAP diluted EPS of $1.28 (up 14.3% YoY); operating (non‑GAAP) diluted EPS was $1.91 (up 19.4%). Software, Infrastructure and Consulting all…
This is our reading of a public filing, not the filing itself. Analysis can contain errors; check the source document for full context.