IBM missed Wall Street estimates for third-quarter revenue as software sales slow down and a boost from the launch of new server products begins to dry up, driving its shares down four per cent.
Overall revenue slipped 2.1 per cent to US$18.76 billion in the three months ended 30 September, missing financial analysts' average estimate of US$19.10 billion, according to data from Refinitiv.
IBM's systems unit, which includes mainframe servers sold to large organisations, climbed about one per cent, compared with a 25 per cent jump in the previous quarter.
Analysts have said sales of IBM's z14 servers, introduced about one year ago, are slowing down as customers await the launch of newer machines before upgrading.
Still, systems sales of US$1.74 billion fell short of analysts' estimates of US$1.79 billion, according to FactSet.
IBM's cognitive software business, which houses artificial intelligence platform Watson, analytics and cybersecurity services, had sales of US$4.15 billion, down six per cent from a year earlier and also below expectations.
The Armonk, New York-based technology services giant, which makes over 60 per cent of its revenue from outside the United States, has warned that the impact of a strengthening dollar will hit results in the second half of 2018.
IBM has been pivoting toward faster-growing cloud services as a way to turn its business around after several quarters of revenue declines.
The company made US$39.5 billion in revenue from businesses under its "strategic imperatives" over the last 12 months, it said.
IBM's net income fell to US$2.69 billion from US$2.73 billion a year earlier. On a per-share basis, earnings rose to US$2.94 from US$2.92 due to a lower number of outstanding shares.
Excluding one-time items, IBM earned US$3.42 per share, while analysts had expected US$3.40.
IBM shares fell to US$139.21 in extended trading on Tuesday. The stock, a Dow component, has fallen about eight per cent this year.
(Reporting by Pushkala Aripaka in Bengaluru; Editing by Sai Sachin Ravikumar)