INTERNATIONAL BUSINESS MACHINES CORP
For the period ended Sep 30, 2026. Filed Oct 22, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Oct 22, 2026
IBM$245.00-0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-06-30; filed 2026-07-23.
0000051143-26-000078
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial ConditionCurrent report: 10-Q
Period ended 2026-09-30; filed 2026-10-22.
0000051143-26-000095
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial ConditionThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 217 previous paragraphs and 213 current paragraphs.
95 unchanged; 94 reworded; 24 added; 25 removed; 3 previous and 0 current paragraphs rearranged.
Tables are not compared: 51 previous and 51 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (24)
Current report
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2026
Current report
Financial Results Summary — Nine Months Ended September 30:
Current report
Financial Performance Summary — Nine Months Ended September 30:
Current report
Third Quarter in Review
Current report
For the third quarter of 2026, Software revenue of $7,804 million increased 8.2 percent as reported (8.7 percent adjusted for currency) compared to the prior-year period led by the combination of strong new business performance, including Confluent, and pipeline closure rates as we completed a significant portion of large deals that failed to close within the expected timelines from the second quarter. Our high-value recurring revenue base, which is approximately 80 percent of Software revenue, continues to deliver solid growth reflecting demand for our offerings. The remaining 20 percent of Software revenue is transactional in nature, which grew in the current period. This performance reinforces our confidence in the strength of the software portfolio.
Current report
Hybrid Cloud (Red Hat) revenue increased 10.6 percent as reported (11.1 percent adjusted for currency) with accelerated bookings growth. OpenShift annual recurring revenue continues to grow and is approximately $2.4 billion. Automation revenue decreased 3.3 percent as reported (2.9 percent adjusted for currency) reflecting a strong prior-year performance, partially offset by growth from HashiCorp. Data revenue increased 19.1 percent as reported (19.6 percent adjusted for currency) driven by the strong performance from Confluent. Transaction Processing revenue increased 9.3 percent as reported (9.9 percent adjusted for currency) driven by demand for this mission-critical software and strong execution against our pipeline, including certain large deals that failed to close from the second quarter.
Current report
For the third quarter of 2026, Software gross profit margin decreased 0.6 points to 82.5 percent, on a year-to-year basis. Segment profit of $2,734 million increased 15.2 percent and segment profit margin of 35.0 percent increased 2.1 points compared to the prior-year period.
Current report
For the first nine months of 2026, Consulting revenue of $15,934 million increased 1.5 percent as reported (1.2 percent adjusted for currency) on a year-to-year basis. Strategy and Technology revenue increased 2.2 percent as reported (2.0 percent adjusted for currency) and Intelligent Operations revenue increased 0.6 percent as reported (0.4 percent adjusted for currency) compared to the prior-year period. Our integrated model, combining deep domain expertise, technology and reusable assets, positions us to help clients capture business value from AI while accelerating time to value.
Current report
For the third quarter of 2026, Consulting gross profit margin of 27.4 percent decreased 1.9 points on a year-to-year basis. Segment profit of $653 million decreased 4.8 percent and segment profit margin of 12.2 percent decreased 0.6 points compared to the prior-year period. This performance primarily reflects investments we have made in the business, including our digital assets to capture the growing AI opportunity, partially offset by the benefits of our ongoing productivity actions.
Current report
For the first nine months of 2026, Consulting gross profit margin of 27.9 percent was essentially flat on a year-to-year basis. Segment profit of $1,858 million increased 2.8 percent and segment profit margin of 11.7 percent was essentially flat compared to the prior-year period. Segment profit performance primarily reflects the benefits of our ongoing productivity actions, partially offset by investments in the business.
Current report
The Infrastructure gross profit margin declines for the third quarter and first nine months of 2026 compared to prior-year period reflect product mix, partially offset by improvement in Distributed Infrastructure margins. Segment profit and margin performance was driven by our ongoing productivity actions, partially offset by product mix and investment in innovation.
Current report
Americas revenue of $8,576 million increased 5.3 percent as reported and 5.1 percent adjusted for currency. The U.S. increased 6.6 percent as reported. Canada decreased 3.7 percent as reported and 2.3 percent adjusted for currency. Latin America decreased 1.2 percent as reported and 4.3 percent adjusted for currency, with Brazil decreasing 15.7 percent as reported and 19.0 percent adjusted for currency.
Current report
•The effects of currency (1 points); partially offset by
Current report
Operating (non-GAAP) SG&A expense decreased 1.3 percent year to year primarily driven by lower spending reflecting the benefits from productivity initiatives and actions taken to transform our operations, partially offset by higher operating expenses from acquired businesses and the effects of currency.
Current report
(2) Includes net (gains)/losses from divestitures and asset sales.
Current report
Total other (income) and expense was income of $109 million in the third quarter of 2026, a decrease of $64 million compared to the prior-year period. The year-to-year change was primarily driven by:
Current report
•Net exchange gains (including derivative instruments) in the current year of $32 million versus net exchange losses in the prior year of $77 million.
Current report
•Higher non-operating retirement-related costs of $223 million. Refer to "Retirement-Related Plans" on page 63 for additional information; and
Current report
•Higher net gains from securities and investment assets of $105 million.
Current report
Operating (non-GAAP) other (income) and expense was income of $578 million in the first nine months of 2026, an increase of $134 million compared to the prior-year period. The year-to-year change was primarily driven by lower net exchange losses, including derivative instruments, and higher net gains from securities and investment assets, partially offset by lower interest income.
Current report
The continuing operations provision for income taxes was $298 million in the third quarter of 2026, compared to $686 million in the third quarter of 2025. The year-to-year change is primarily driven by the one-time, non-cash income tax charge recorded in the third quarter of 2025 resulting from the enactment of H.R. 1. This charge did not impact our operating (non-GAAP) tax expense. The operating (non-GAAP) provision for income taxes was $483 million in the third quarter of 2026, compared to $516 million in the third quarter of 2025.
Current report
Net cash used in financing activities increased $1,979 million driven by lower net proceeds from debt in the current-year period, partially offset by cash provided by noncontrolling interest transactions (refer to "Other Transactions" in note 5, "Acquisition, Divestitures and Other Transactions," for additional information).
Current report
Our performance over the first nine months of 2026 reflects the strength across our portfolio, disciplined execution against our priorities, and the continued success of our focused strategy around hybrid cloud and AI. Our productivity initiatives generate profit and cash flow growth enabling us to continue to invest in our business while returning value to shareholders. We remain confident in the growth opportunities ahead of us and our ability to capture them.
Current report
(1)Includes noncontrolling interest transactions. Refer to "Other Transactions" in note 5, "Acquisition, Divestitures and Other Transactions," for additional information.
Removed paragraphs (25)
Previous report
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026
Previous report
Total revenue grew 1.1 percent both as reported and adjusted for currency compared to the prior-year period. Software and Infrastructure revenue results were below our expectations, while Consulting was in-line. The Software shortfall was limited to a capital-sensitive area of the portfolio. While we are navigating near-term client buying dynamics that we will work through, about 80 percent of our software revenue is recurring in nature and delivered healthy growth in the quarter, reflecting the demand for our offerings and giving us confidence in our growth opportunity. Since the z17 was introduced in June 2025, this has been the strongest start to a mainframe program in our history, and we expected declines year to year in revenue. However, the results in the quarter were worse than our expectations, driven by a shortfall in our IBM Z performance and the associated software stack, primarily in Transaction Processing. In the final weeks of June, we saw a shift in client spending priorities that resulted in numerous large deals failing to close within the expected timelines, driving the majority of the shortfall. Many clients redirected spending toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. We saw this dynamic firsthand, with Distributed Infrastructure revenue increasing 37 percent, our strongest quarter on record.
Previous report
Financial Results Summary — Six Months Ended June 30:
Previous report
Financial Performance Summary —Six Months Ended June 30:
Previous report
Second Quarter in Review
Previous report
For the second quarter of 2026, Software revenue of $7,761 million increased 5.1 percent as reported (4.6 percent adjusted for currency) compared to the prior-year period. Although the revenue performance was below our expectations, recent acquisitions delivered a strong contribution to Software revenue growth. Our recurring revenue base, which is approximately 80 percent of Software revenue, delivered healthy growth, reflecting demand for our offerings. The remaining 20 percent of Software revenue is transactional in nature, and is predominantly related to the incumbency with IBM Z and the associated enterprise license agreements (ELAs) with Transaction Processing and other software products in Data and Automation. ELAs are highly valuable to IBM because they establish long-term, strategic client commitments that expand adoption across our software products, creating a multiplier effect. Transactional revenue declined in the period given the shift in customer buying patterns late in the quarter.
Previous report
Hybrid Cloud (Red Hat) revenue increased 11.2 percent as reported (10.9 percent adjusted for currency), driven by subscriptions and stabilization in consumption-based services. OpenShift annual recurring revenue is now over $2 billion. Automation revenue increased 3.6 percent as reported (3.1 percent adjusted for currency). Data revenue increased 18.9 percent as reported (18.4 percent adjusted for currency) reflecting the contribution from recent acquisitions, primarily Confluent. Transaction Processing revenue decreased 8.1 percent as reported (8.6 percent adjusted for currency), reflecting the shortfall in our IBM Z performance.
Previous report
For the first six months of 2026, Software gross profit margin decreased 1.1 points to 82.7 percent on a year-to-year basis. Segment profit of $4,601 million increased 11.1 percent and segment profit margin of 31.1 percent increased 0.9 points compared to the prior-year period.
Previous report
For the first six months of 2026, Consulting revenue of $10,599 million increased 2.1 percent as reported (1.0 percent adjusted for currency) on a year-to-year basis. The revenue performance for Consulting and the lines of business was primarily driven by the same factors as described above for the second quarter.
Previous report
In the second quarter of 2026, Consulting gross profit margin of 28.9 percent increased 1.4 points on a year-to-year basis. Segment profit of $647 million increased 15.1 percent and segment profit margin of 12.1 percent increased 1.6 points compared to the prior-year period.
Previous report
For the first six months of 2026, Consulting gross profit margin of 28.2 percent increased 0.8 points on a year-to-year basis. Segment profit of $1,205 million increased 7.5 percent and segment profit margin of 11.4 percent increased 0.6 points compared to the prior-year period.
Previous report
Consulting gross profit, segment profit and respective margin performance in the second quarter and first six months of 2026 primarily reflect the benefits of the productivity actions we have taken, partially offset by investments in innovation.
Previous report
Infrastructure gross profit, segment profit and respective margin performance in the second quarter of 2026 was driven by the IBM Z shortfall and associated product mix, partially offset by productivity actions we have taken.
Previous report
Infrastructure gross profit, segment profit and respective margin performance in the first six months of 2026 primarily reflect productivity actions we have taken, partially offset by product mix.
Previous report
Americas revenue of $8,417 million decreased 0.5 percent as reported and 1.0 percent adjusted for currency. The U.S. decreased 2.4 percent as reported. Canada decreased 17.1 percent as reported and 16.9 percent adjusted for currency. Latin America increased 30.2 percent as reported and 24.9 percent adjusted for currency, with Brazil increasing 47.4 percent as reported and 39.8 percent adjusted for currency.
Previous report
•The effects of currency (2 points); and
Previous report
Total other (income) and expense was income of $185 million in the second quarter of 2026, an increase of $146 million compared to the prior-year period. The year-to-year change was primarily driven by:
Previous report
•Higher net gains from equity investments of $107 million, which includes $56 million of unrealized gains; partially offset by
Previous report
•Higher non-operating retirement-related cost of $70 million. Refer to "Retirement-Related Plans" on page 62 for additional information.
Previous report
•Higher net gains from equity investments of $107 million, which includes $56 million of unrealized gains; and
Previous report
Operating (non-GAAP) other (income) and expense was income of $378 million in the first six months of 2026 and increased $125 million compared to the prior-year period. The year-to-year change was primarily driven by the factors described above excluding higher non-operating retirement-related costs.
Previous report
The continuing operations provision for income taxes was $313 million in the second quarter of 2026, compared to $404 million in the second quarter of 2025. The operating (non-GAAP) provision for income taxes was $498 million in the second quarter of 2026, compared to $545 million in the second quarter of 2025.
Previous report
Financing activities were a net use of cash of $3,008 million in the first six months of 2026 compared to a net source of cash of $2,589 million in the first six months of 2025 driven by a higher level of maturities and lower level of debt issuances year to year.
Previous report
Our conviction in the strength of our business and our ability to grow and drive shareholder value remains unchanged. We recognize that the technology spending environment remains dynamic, and we must continue to evolve how we engage clients, bringing the full breadth of IBM's innovation to bear on their most important priorities. As clients determine how and where to deploy AI, we believe our portfolio is well positioned to help clients realize value in a secure, cost-effective, and scalable way.
Previous report
Although our second-quarter 2026 results fell short of our expectations, we continue to focus on the fundamentals of our business by enhancing our go-to-market model, advancing our high-growth portfolio, and accelerating our innovation and productivity actions which span both spend reduction initiatives and actions designed to drive growth. We are a leader in hybrid cloud, we are investing to capitalize on the AI opportunity that plays directly to IBM's strengths in data, orchestration, and enterprise trust, and we continue to build leadership in quantum. We remain confident in the growth opportunities ahead of us and our ability to capture them.
Reworded paragraphs (94)
Previous wording
(1)Year-to-year revenue growth of 1 percent adjusted for currency.
Current wording
(1)Year-to-year revenue growth of 6 percent adjusted for currency.
Previous wording
The following table provides the company’s operating (non-GAAP) earnings for the second quarter of 2026 and 2025.
Current wording
The following table provides the company’s operating (non-GAAP) earnings for the third quarter of 2026 and 2025.
Previous wording
In the second quarter of 2026, we reported $17.2 billion in revenue, income from continuing operations of $2.2 billion, and operating (non-GAAP) earnings of $2.8 billion. Diluted earnings per share from continuing operations was $2.27 as reported and $2.93 on an operating (non-GAAP) basis. We generated $2.6 billion in cash from operations and $2.5 billion in free cash flow, and returned $1.6 billion to shareholders in dividends. While our second-quarter performance was below our expectations, we have conviction in the strength of our portfolio and the strategic direction of our business. We believe our strategic investments over the past several years continue to strengthen IBM's position as a software-led Hybrid Cloud and AI platform company and we continue to build leadership in quantum.
Current wording
In the third quarter of 2026, we reported $17.1 billion in revenue, income from continuing operations of $2.2 billion, and operating (non-GAAP) earnings of $2.8 billion. Diluted earnings per share from continuing operations was $2.31 as reported and $2.95 on an operating (non-GAAP) basis. We generated $4.0 billion in cash from operations and $3.0 billion in free cash flow, and returned $1.6 billion to shareholders in dividends. Our third-quarter performance demonstrates the strength of our portfolio, disciplined execution against our priorities and the continued value clients place on our mission-critical platforms. We believe our strategic investments over the past several years continue to strengthen IBM's position as a software-led Hybrid Cloud and AI platform company and advance our quantum capabilities, a strategic area of differentiation and long-term opportunity.
Previous wording
Software delivered revenue growth of 5.1 percent as reported (4.6 percent adjusted for currency). Consulting revenue was flat as reported and increased 1.1 percent adjusted for currency. Infrastructure revenue decreased 7.4 percent both as reported and adjusted for currency.
Current wording
Total revenue grew 4.7 percent as reported and 5.6 percent adjusted for currency compared to the prior-year period. Software delivered revenue growth of 8.2 percent as reported (8.7 percent adjusted for currency). Consulting revenue was flat as reported and increased 1.8 percent adjusted for currency. Infrastructure revenue increased 4.2 percent as reported (4.9 percent adjusted for currency).
Previous wording
From a geographic perspective, Americas revenue decreased 0.5 percent as reported (1.0 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 4.1 percent as reported (2.1 percent adjusted for currency). Asia Pacific increased 0.3 percent as reported (5.2 percent adjusted for currency).
Current wording
From a geographic perspective, Americas revenue increased 5.3 percent as reported (5.1 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 3.3 percent as reported (4.3 percent adjusted for currency). Asia Pacific increased 5.6 percent as reported (9.6 percent adjusted for currency).
Previous wording
Gross margin of 57.7 percent decreased 1.0 point year to year driven by our revenue shortfall and mix, partially offset by productivity actions. Operating (non-GAAP) gross margin of 59.4 percent decreased 0.7 points compared to the prior-year period due to the same dynamics.
Current wording
Gross margin of 56.8 percent decreased 0.5 points year to year and operating (non-GAAP) gross margin of 58.5 percent decreased 0.2 points compared to the prior-year period.
Previous wording
Total expense and other (income) increased 0.7 percent in the second quarter of 2026 compared to the second quarter of 2025 driven by our investments in portfolio innovation, and higher amortization of acquired intangible assets and acquisition-related charges, partially offset by savings from productivity actions and the effects of currency. Total operating (non-GAAP) expense and other (income) decreased 1.5 percent year to year, driven by savings from productivity actions and the effects of currency, partially offset by our investments in portfolio innovations.
Current wording
Total expense and other (income) increased 4.1 percent in the third quarter of 2026 compared to the third quarter of 2025, driven by our investments in portfolio innovation, and higher non-operating retirement-related costs, partially offset by savings from productivity actions and the effects of currency. Total operating (non-GAAP) expense and other (income) increased 2.3 percent year to year, driven primarily by the same factors as described above, excluding higher non-operating retirement-related costs.
Previous wording
Pre-tax income from continuing operations of $2.5 billion decreased 4.5 percent compared to the prior-year period and pre-tax margin declined 0.9 points year to year to 14.4 percent. Software and Consulting segment profit margins improved year to year, while Infrastructure profit margin was impacted by the IBM Z shortfall and cycle dynamics. The continuing operations provision for income taxes was $0.3 billion in the second quarter of 2026, compared to $0.4 billion in the second quarter of 2025. Net income from continuing operations was essentially flat year to year. Net income from continuing operations margin of 12.6 percent, was down 0.3 points year to year.
Current wording
Pre-tax income from continuing operations of $2.5 billion increased 2.8 percent compared to the prior-year period and pre-tax margin declined 0.3 points year to year to 14.6 percent. The continuing operations provision for income taxes was $0.3 billion in the third quarter of 2026, compared to $0.7 billion in the third quarter of 2025, which included a one-time, non-cash income tax charge resulting from the enactment of H.R. 1. Net income from continuing operations of $2.2 billion increased 26.1 percent and net income from continuing operations margin of 12.9 percent increased 2.2 points year to year.
Previous wording
Operating (non-GAAP) pre-tax income from continuing operations of $3.3 billion increased 2.9 percent compared to the second quarter of 2025 and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.3 points to 19.2 percent. The operating (non-GAAP) provision for income taxes was $0.5 billion in both the second quarter of 2026 and the second quarter of 2025. Operating (non-GAAP) net income from continuing operations of $2.8 billion increased 5.3 percent and the operating (non-GAAP) net income margin from continuing operations of 16.3 percent increased 0.6 point year to year.
Current wording
Operating (non-GAAP) pre-tax income from continuing operations of $3.3 billion increased 8.7 percent compared to the third quarter of 2025 and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.7 points to 19.3 percent. The operating (non-GAAP) provision for income taxes was $0.5 billion in both the third quarter of 2026 and the third quarter of 2025. Operating (non-GAAP) income from continuing operations of $2.8 billion increased 11.7 percent and the operating (non-GAAP) income margin from continuing operations of 16.4 percent increased 1.0 point year to year.
Previous wording
Diluted earnings per share from continuing operations of $2.27 decreased 1.7 percent and operating (non-GAAP) diluted earnings per share of $2.93 increased 4.6 percent compared to the second quarter of 2025.
Current wording
Diluted earnings per share from continuing operations of $2.31 increased 25.5 percent and operating (non-GAAP) diluted earnings per share of $2.95 increased 11.3 percent compared to the third quarter of 2025.
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Cash provided by operating activities was $2.6 billion in the second quarter of 2026, an increase of $0.9 billion compared to the second quarter of 2025, which includes a decrease in cash used by financing receivables of $1.2 billion. Free cash flow was $2.5 billion, a decrease of $0.3 billion versus the prior-year period. Net cash used in investing activities was $0.5 billion, compared with net cash provided by investing activities of $1.7 billion in the prior-year period. Net cash used in financing activities of $5.7 billion increased $2.9 billion compared to the second quarter of 2025.
Current wording
Cash provided by operating activities was $4.0 billion in the third quarter of 2026, an increase of $0.9 billion compared to the third quarter of 2025, which includes an increase in cash provided by financing receivables of $0.2 billion. Free cash flow was $3.0 billion, an increase of $0.7 billion versus the prior-year period. Net cash used in investing activities increased $2.1 billion to $2.6 billion compared with the prior-year period. Net cash provided by financing activities was $0.6 billion in the third quarter of 2026, compared to net cash used in financing activities of $3.0 billion in the third quarter of 2025.
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(1)Year-to-year revenue growth of 3 percent adjusted for currency.
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(1)Year-to-year revenue growth of 4 percent adjusted for currency.
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The following table provides the company’s operating (non-GAAP) earnings for the first six months of 2026 and 2025.
Current wording
The following table provides the company’s operating (non-GAAP) earnings for the first nine months of 2026 and 2025.
Previous wording
In the first six months of 2026, we reported $33.1 billion in revenue, net income from continuing operations of $3.4 billion, and operating (non-GAAP) earnings of $4.6 billion. Diluted earnings per share from continuing operations was $3.55 as reported and $4.84 on an operating (non-GAAP) basis. We generated $7.8 billion in cash from operations and $4.8 billion in free cash flow, and delivered shareholder returns of $3.2 billion in dividends. Our year-to-date performance was impacted by the dynamics we faced in the second quarter of 2026; however, it also reflects a focus on business fundamentals as we accelerate our productivity initiatives while continuing to invest in growth. We continue to maintain a strong liquidity position and a solid investment grade balance sheet which enables us to invest in our business and return value to shareholders through dividends.
Current wording
In the first nine months of 2026, we reported $50.2 billion in revenue, net income from continuing operations of $5.6 billion, and operating (non-GAAP) earnings of $7.4 billion. Diluted earnings per share from continuing operations was $5.86 as reported and $7.79 on an operating (non-GAAP) basis. We generated $11.8 billion in cash from operations and $7.8 billion in free cash flow, and delivered shareholder returns of $4.8 billion in dividends. Our year-to-date performance reflects the benefits of our productivity initiatives and continued operational discipline. We continue to maintain a strong liquidity position and a solid investment grade balance sheet, which enable us to invest in our business and return value to shareholders through dividends.
Previous wording
Total revenue grew 5.0 percent as reported and 3.4 percent adjusted for currency compared to the prior-year period. Software grew 7.9 percent as reported (6.1 percent adjusted for currency). Consulting revenue increased 2.1 percent as reported (1.0 percent adjusted for currency). Infrastructure revenue increased 1.9 percent as reported (0.5 percent adjusted for currency).
Current wording
Total revenue grew 4.9 percent as reported and 4.2 percent adjusted for currency compared to the prior-year period. Software grew 8.1 percent as reported (7.0 percent adjusted for currency). Consulting revenue increased 1.5 percent as reported (1.2 percent adjusted for currency). Infrastructure revenue increased 2.7 percent as reported (1.9 percent adjusted for currency).
Previous wording
From a geographic perspective, Americas revenue increased 3.9 percent year to year as reported (3.2 percent adjusted for currency). EMEA increased 9.1 percent (3.6 percent adjusted for currency). Asia Pacific increased 0.7 percent (3.6 percent adjusted for currency).
Current wording
From a geographic perspective, Americas revenue increased 4.4 percent year to year as reported (3.8 percent adjusted for currency). EMEA increased 7.1 percent (3.9 percent adjusted for currency). Asia Pacific increased 2.3 percent (5.6 percent adjusted for currency).
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Gross margin of 57.0 percent and operating (non-GAAP) gross margin of 58.6 percent were essentially flat compared to the prior-year period and were impacted by the second quarter 2026 revenue shortfall and mix dynamics.
Current wording
Gross margin of 56.9 percent decreased 0.3 points and operating (non-GAAP) gross margin of 58.6 percent was essentially flat compared to the prior-year period.
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Total expense and other (income) increased 5.2 percent in the first six months of 2026 versus the prior-year period primarily driven by our investments in portfolio innovation, and higher amortization of acquired intangible assets and acquisition-related charges, partially offset by savings from productivity actions. Total operating (non-GAAP) expense and other (income) increased 3.4 percent year to year, driven primarily by the same factors excluding the higher amortization of acquired intangible assets and acquisition-related charges.
Current wording
Total expense and other (income) increased 4.8 percent in the first nine months of 2026 versus the prior-year period primarily driven by our investments in portfolio innovation, and higher non-operating retirement-related costs, partially offset by savings from productivity actions and the effects of currency. Total operating (non-GAAP) expense and other (income) increased 3.0 percent year to year, driven primarily by the same factors as described above, excluding the higher non-operating retirement-related costs.
Previous wording
Pre-tax income from continuing operations of $3.9 billion increased 3.0 percent and pre-tax margin was 11.7 percent, a decline of 0.2 points as compared to the first six months of 2025. The continuing operations provision for income taxes in the first six months of 2026 and the first six months of 2025 was $0.5 billion. Net income from continuing operations of $3.4 billion increased 4.1 percent and the net income from continuing operations margin was 10.2 percent, down 0.1 points year to year. The year-to-year performance was primarily driven by first-half revenue growth and increased productivity, partially offset by our investments in portfolio innovation.
Current wording
Pre-tax income from continuing operations of $6.4 billion increased 2.9 percent and pre-tax margin was 12.7 percent, a decline of 0.2 points as compared to the first nine months of 2025. The continuing operations provision for income taxes was $0.8 billion in the first nine months of 2026, compared to $1.2 billion in the first nine months of 2025. Net income from continuing operations of $5.6 billion increased 11.8 percent and the net income from continuing operations margin was 11.1 percent, which increased 0.7 points year to year.
Previous wording
Operating (non-GAAP) pre-tax income from continuing operations of$5.4 billion increased 9.8 percent compared to the prior-year period and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.7 points to 16.4 percent. The operating (non-GAAP) provision for income taxes in the first six months of 2026 and the first six months of 2025 was $0.8 billion. Operating (non-GAAP) income from continuing operations of$4.6 billion increased 10.7 percent and the operating (non-GAAP) income margin from continuing operations of 13.9 percent increased 0.7 points year to year. The year-to-year performance is primarily driven by the same factors as described above.
Current wording
Operating (non-GAAP) pre-tax income from continuing operations of$8.7 billion increased 9.4 percent compared to the prior-year period and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.7 points to 17.4 percent. The operating (non-GAAP) provision for income taxes in both the first nine months of 2026 and the first nine months of 2025 was $1.3 billion. Operating (non-GAAP) income from continuing operations of$7.4 billion increased 11.1 percent and the operating (non-GAAP) income margin from continuing operations of 14.8 percent increased 0.8 points year to year.
Previous wording
Diluted earnings per share from continuing operations of$3.55 in the first six months of 2025 increased 3.5 percent and operating (non-GAAP) diluted earningsper share of $4.84 increased 10.0 percent compared to the first six months of 2025.
Current wording
Diluted earnings per share from continuing operations of$5.86 in the first nine months of 2026 increased 11.2 percent and operating (non-GAAP) diluted earningsper share of $7.79 increased 10.4 percent compared to the first nine months of 2025.
Previous wording
At June 30, 2026, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at June 30, 2026 of $8.2 billion decreased $6.3 billion from December 31, 2025 and debt of $62.0 billion at June 30, 2026 increased $0.7 billion. The company continues to make investments in innovation both organically and through acquisitions, including the Confluent acquisition in first-quarter 2026.
Current wording
At September 30, 2026, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at September 30, 2026 of $11.1 billion decreased $3.4 billion from December 31, 2025 and debt of $63.8 billion at September 30, 2026 increased $2.6 billion. The company continues to make investments in innovation both organically and through acquisitions, including the Confluent acquisition in the first quarter of 2026.
Previous wording
Total assets increased $0.2 billion ($1.3 billion adjusted for currency) from December 31, 2025. Total liabilities decreased $1.6 billion ($0.5 billion adjusted for currency) from December 31, 2025. Total equity of $34.5 billion increased $1.8 billion from December 31, 2025.
Current wording
Total assets increased $3.1 billion ($4.3 billion adjusted for currency) from December 31, 2025. Total liabilities decreased $0.3 billion ($0.9 billion adjusted for currency) from December 31, 2025. Total equity of $36.2 billion increased $3.5 billion from December 31, 2025.
Previous wording
Cash provided by operating activities was $7.8 billion in the firstsix months of 2026, an increase of$1.7 billion compared to the first six months of 2025, which includes an increase in cash provided by financing receivables of $1.7 billion. Free cash flow of $4.8 billion was essentially flat versus the prior-year period. Refer to page 72 for additional information on free cash flow. Net cash used in investing activities of $11.0 billion, which includes our investment in the acquisition of Confluent, decreased $0.3 billion compared to the prior-year period. Financing activities were a net use of cash of $3.0 billion in the firstsix months of 2026 compared to a net source of cash of $2.6 billion in thefirst six months of 2025.
Current wording
Cash provided by operating activities was $11.8 billion in the first nine months of 2026, an increase of$2.6 billion compared to the first nine months of 2025, which includes an increase in cash provided by financing receivables of $1.9 billion. Free cash flow of $7.8 billion increased$0.6 billion versus the prior-year period. Refer to page 72 for additional information on free cash flow. Net cash used in investing activities of $13.5 billion, which includes our investment in the acquisition of Confluent, increased $1.8 billion compared to the prior-year period. Net cash used in financing activities of $2.4 billion increased$2.0 billion compared to thefirst nine months of 2025.
Previous wording
The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the second quarter and the first six months of 2026 versus the second quarter and first six months of 2025 reportable segments results.
Current wording
The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the third quarter and the first nine months of 2026 versus the third quarter and first nine months of 2025 reportable segments results.
Previous wording
Revenue performance by line of business in the second quarter compared to the prior-year period was as follows:
Current wording
Revenue performance by line of business in the third quarter compared to the prior-year period was as follows:
Previous wording
Across Software, our annual recurring revenue (ARR) was solid at $24.6 billion, which increased approximately $2 billion as reported year to year. This increase reflects the acquisition of Confluent and growth across other areas of our recurring revenue base. ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment, and is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.
Current wording
Across Software, our annual recurring revenue (ARR) was solid at $24.9 billion, and increased approximately $2 billion as reported year to year. This increase reflects the acquisition of Confluent and growth across other areas of our recurring revenue base. ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment, and is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.
Previous wording
Revenue performance in the first six months of 2026 compared to the prior-year period was as follows:
Current wording
Revenue performance in the first nine months of 2026 compared to the prior-year period was as follows:
Previous wording
Software revenue of $14,813 million increased 7.9 percent as reported (6.1 percent adjusted for currency). Hybrid Cloud and Data both grew at double-digit rates, Automation expanded at a mid-single digit rate and Transaction Processing declined. The revenue performance in Software for the first six months of 2026 reflects the contribution from Hybrid Cloud and recent acquisitions, including Confluent and HashiCorp, and the investment in innovating our organic software; partially offset by the transactional dynamics that occurred in the second-quarter 2026.
Current wording
Software revenue of $22,617 million increased 8.1 percent as reported (7.0 percent adjusted for currency) with growth in all lines of business. Hybrid Cloud and Data both grew at double-digit rates, and Automation and Transaction Processing both grew at low-single digit rates. The revenue performance in Software for the first nine months of 2026 reflects contributions from Hybrid Cloud and recent acquisitions, including Confluent and HashiCorp, as well as the investments we have made in organic software innovation.
Previous wording
For the second quarter of 2026, Software gross profit margin decreased 1.3 points to 82.6 percent, on a year-to-year basis. Segment profit of $2,502 million increased 8.9 percent and segment profit margin of 32.2 percent increased 1.1 points compared to the prior-year period.
Current wording
For the first nine months of 2026, Software gross profit margin decreased 0.9 points to 82.6 percent on a year-to-year basis. Segment profit of $7,335 million increased 12.5 percent and segment profit margin of 32.4 percent increased 1.3 points compared to the prior-year period.
Previous wording
The Software gross profit margin decline for the second quarter and the first six months of 2026 was primarily driven by investments in our portfolio innovation, and product mix. Segment profit and profit margin performance for both periods reflect the benefits of our productivity actions, partially offset by investments in the business.
Current wording
Software gross profit margin decline for the third quarter and the first nine months of 2026 compared to the prior-year periods was primarily driven by investments in innovation, and product mix. Segment profit and margin performance for both periods reflect the benefits of our ongoing productivity actions and currency, partially offset by investments in innovation.
Previous wording
For the second quarter of 2026, Consulting revenue of $5,327 million was essentially flat as reported (increased 1.1 percent adjusted for currency) on a year-to-year basis. Strategy and Technology revenue increased 0.5 percent as reported (1.3 percent adjusted for currency), and Intelligent Operations revenue was flat as reported (increased 0.8 percent adjusted for currency), compared to the prior-year period. The revenue performance in Consulting was driven by demand for application modernization, data transformation and cybersecurity services as clients balance the need to increase productivity through AI with the need to strengthen resiliency and manage risk.
Current wording
For the third quarter of 2026, Consulting revenue of $5,335 million was essentially flat as reported (increased 1.8 percent adjusted for currency) on a year-to-year basis. Strategy and Technology revenue increased 2.1 percent as reported (3.6 percent adjusted for currency) and Intelligent Operations revenue decreased 2.0 percent as reported (0.4 percent adjusted for currency) compared to the prior-year period. Across Consulting, we continue to see growth driven by demand for application modernization, data and AI transformation, and cybersecurity services as clients deploy AI securely and at scale.
Previous wording
For the three and six months ended June 30, 2026, Consulting signings increased 5.0 percent as reported (5.9 percent adjusted for currency) and 6.8 percent as reported (5.9 percent adjusted for currency), respectively, compared to the prior-year period. This was the second consecutive quarter of solid signings growth reflecting continued client investment in business transformation initiatives. Our book-to-bill ratio for the trailing twelve-months was approximately 1.05. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period. The metric is a useful indicator of the demand of our business over time. At June 30, 2026, backlog was $30.8 billion.
Current wording
For the three and nine months ended September 30, 2026 compared to the prior-year periods, Consulting signings decreased 3.7 percent as reported (2.0 percent adjusted for currency), but increased 3.1 percent as reported (3.2 percent adjusted for currency), respectively. Although signings declined in the third quarter on a year-to-year basis, there was client investment in cybersecurity and data transformation initiatives. Our book-to-bill ratio for the trailing twelve-months was approximately 1.04. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period. The metric is a useful indicator of the demand of our business over time. At September 30, 2026, backlog was $30.2 billion.
Previous wording
For the second quarter of 2026 as compared to the prior-year period, Infrastructure revenue of $3,835 million decreased 7.4 percent, with a decline in Hybrid Infrastructure of 10.3 percent as reported (10.1 percent adjusted for currency) and a decline in Infrastructure Support of 0.8 percent as reported (1.1 percent adjusted for currency). Within Hybrid Infrastructure, IBM Z decreased 42.0 percent as reported (41.8 percent adjusted for currency) reflecting performance below expectations in the current period, and also comparing to a historically strong prior-year z17 launch. Distributed Infrastructure revenue increased 37.3 percent as reported (37.5 percent adjusted for currency), with double-digit growth in both Storage and Power. Storage revenue growth reflects our differentiated offerings including those with AI-enabled capabilities that help clients scale and manage data for AI. Power revenue growth was driven by continued demand for Power11 with its value proposition of resiliency, performance and Linux modernization.
Current wording
For the third quarter of 2026 as compared to the prior-year period, Infrastructure revenue of $3,707 million increased 4.2 percent as reported (4.9 percent adjusted for currency) with an increase in Hybrid Infrastructure of 8.3 percent as reported (9.0 percent adjusted for currency), partially offset by a decline in Infrastructure Support of 3.1 percent as reported (2.4 percent adjusted for currency). Within Hybrid Infrastructure, IBM Z decreased 19.6 percent as reported (19.3 percent adjusted for currency) reflecting product cycle dynamics, and Distributed Infrastructure revenue increased 31.3 percent as reported (32.3 percent adjusted for currency) with continued strong performance in both Storage and Power. The growth in Storage and Power reflects the importance of differentiated infrastructure as clients modernize their environments, address data growth, and support AI at scale.
Previous wording
For the first six months of 2026, Infrastructure revenue of $7,161 million increased 1.9 percent as reported (0.5 percent adjusted for currency) compared to the prior-year period, reflecting growth in Distributed Infrastructure, led by double-digit growth in Power and Storage. IBM Z and Infrastructure Support revenue performance reflects product cycle dynamics. IBM Z revenue was impacted by the shortfall in the second quarter, but z17 remains our strongest program on record as clients continue to invest in the platform to modernize mission-critical workloads.
Current wording
For the first nine months of 2026 as compared to the prior-year period, Infrastructure revenue of $10,868 million increased 2.7 percent as reported (1.9 percent adjusted for currency) reflecting growth in Distributed Infrastructure, led by double-digit growth in both Power and Storage. IBM Z and Infrastructure Support revenue performance reflects product cycle dynamics from the z17 launch in the second quarter of 2025. The z17 remains our strongest program on record reflecting the security, reliability, scalability and compelling economics of the platform.
Previous wording
For the second quarter of 2026, Infrastructure gross profit margin of 58.4 percent decreased 3.1 points on a year-to-year basis. Infrastructure segment profit of $835 million decreased 13.4 percent and segment profit margin of 21.8 percent decreased 1.5 points compared to the prior-year period.
Current wording
For the third quarter of 2026, Infrastructure gross profit margin of 56.7 percent decreased 0.4 points on a year-to-year basis. Infrastructure segment profit of $715 million increased 10.9 percent and segment profit margin of 19.3 percent increased 1.2 points compared to the prior-year period.
Previous wording
For the first six months of 2026, gross profit margin of 57.7 percent was essentially flat on a year-to-year basis. Infrastructure segment profit of $1,360 million increased 12.1 percent and segment profit margin of 19.0 percent increased 1.7 points compared to the prior-year period.
Current wording
For the first nine months of 2026, gross profit margin of 57.4 percent decreased 0.3 points on a year-to-year basis. Infrastructure segment profit of $2,074 million increased 11.7 percent and segment profit margin of 19.1 percent increased 1.5 points compared to the prior-year period.
Previous wording
In EMEA, total revenue of $5,633 million increased 4.1 percent as reported and 2.1 percent adjusted for currency. The U.K. increased 14.3 percent as reported and 14.1 percent adjusted for currency. Germany, France and Italy decreased 5.5 percent, 6.0 percent, and 13.4 percent, respectively, as reported, and 7.5 percent, 8.0 percent, and 15.2 percent, respectively, adjusted for currency. The Middle East and Africa region increased 22.9 percent as reported and 20.9 percent adjusted for currency.
Current wording
EMEA revenue of $5,426 million increased 3.3 percent as reported and 4.3 percent adjusted for currency. Italy, Germany and the U.K. increased 22.7 percent, 7.8 percent and 1.1 percent, respectively, as reported and 24.7 percent, 9.5 percent and 1.4 percent, respectively, adjusted for currency. France decreased 13.9 percent as reported and 12.5 percent adjusted for currency. The Middle East and Africa region increased 14.3 percent as reported and 12.8 percent adjusted for currency.
Previous wording
Asia Pacific revenue of $5,925 million increased 0.7 percent as reported and 3.6 percent adjusted for currency. Australia and India increased 11.7 percent and 9.1 percent, respectively, as reported, and 1.2 percent and 18.3 percent, respectively, adjusted for currency. Japan decreased 6.9 percent as reported and 0.5 percent adjusted for currency.
Current wording
Asia Pacific revenue of $3,101 million increased 5.6 percent as reported and 9.6 percent adjusted for currency. Australia and India increased 32.4 percent and 4.2 percent, respectively, as reported and 22.7 percent and 13.8 percent, respectively, adjusted for currency. Japan decreased 3.3 percent as reported, but increased 4.2 percent adjusted for currency.
Previous wording
Geographic revenue performance for the six months ended June 30, 2026 compared to the prior-year period:
Current wording
Geographic revenue performance for the nine months ended September 30, 2026 compared to the prior-year period:
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Previous report — wording carried elsewhere
Expected credit loss expense was a provision of $7 million in the second quarter of 2026 compared to $14 million in the prior-year period. The year-to-year change was primarily driven by lower specific reserve requirements in the current year. Refer to "Receivables and Allowances" section on page 67 for additional information.
Previous report — wording carried elsewhere
Operating (non-GAAP) SG&A expense increased 0.3 percent year to year primarily driven by the same factors above, excluding the higher amortization of acquired intangible assets and acquisition-related charges.
Previous report — wording carried elsewhere
•Lower net exchange losses (including derivative instruments) of $68 million; partially offset by