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IBM Raises Free Cash Flow Growth Target to Over $1 Billion
IBM lifts free cash flow growth outlook above $1 billion as software accelerates to 9% and transaction processing rebounds 10%.
In brief
IBM lifts free cash flow growth outlook above $1 billion as software accelerates to 9% and transaction processing rebounds 10%. IBM raised its full-year free cash flow growth expectation to more than $1 billion after software revenue grew 9% and transaction processing rebounded 10%. Originally reported by BigGo…
IBM Reports Q3 2026 Revenue Growth
![[International Business Machines Q3 2026 Earnings Call] IBM Lifts Free Cash Flow Growth Outlook Above $1 Billion as Software Accelerates to 9% and TP Rebounds 1](https://img.biggo.com/zJCbao2dszcYEkMBy4-GDwcO8__PAD0ahlpbpFUvoqk/fit/1720/0/sm/0/aHR0cHM6Ly9pbWcuYmdvLm9uZS9uZXdzLWltYWdlL2Vhcm5pbmdzX2NhcmQvMjAyNi0xMC9VU19JQk1fMjAyNi0xMC0yMV8xNzkyNjI0NzQyLndlYnA.webp)
IBM reported third-quarter 2026 revenue growth of 6% at constant currency, accelerating from the 4% base case outlined in July.
Software Revenue Accelerates to 9%
Software revenue rose 9%, with high-value annual recurring revenue climbing 8% to $24.9 billion.
Transaction Processing Rebounds 10%
Transaction processing surged 10% after a double-digit decline in Q2, attributed to timing rather than demand destruction.
Operating Margins Expand
Operating pre-tax margin expanded 70 basis points and diluted operating EPS grew 11%.
Free Cash Flow Margin Records
Through nine months, IBM generated roughly $8 billion in free cash flow, up 8% year-over-year, with the highest nine-month free cash flow margin in reported history.
CFO Notes Software Acceleration
CFO Jim Kavanaugh said roughly one-quarter of the software acceleration came from closing about two-thirds of Q2 slip deals.
Software Acceleration Breakdown
About three-quarters of the software acceleration came from net new business, with transaction processing growing double digits.
Lightwell Pipeline Expands
IBM's Lightwell, an open-source security offering, has a pipeline approaching $700 million with 40,000 remediated packages released.
Infrastructure Revenue Grows 5%
Infrastructure revenue grew 5%, driven by 32% growth in distributed infrastructure and record storage revenue growth.
z17 Mainframe Program Strong
The z17 mainframe program generated more than $1 billion in incremental revenue over six quarters versus prior programs.
Consulting Revenue Improves 2%
Consulting revenue grew 2%, led by strategy and technology up 4%, with AI embedded in 30% of consulting revenue.
Full-Year Free Cash Flow Target Raised
IBM raised its full-year free cash flow growth expectation to more than $1 billion, up from its prior target.
Q&A on TP Durability
CEO Arvind Krishna cautioned that double-digit TP growth will not persist but highlighted a long application modernization cycle benefiting Red Hat OpenShift.
2027 Guidance Details
IBM will detail 2027 guidance in January, with focus on software growth, quantum, and AI adoption.
The main idea
IBM raised its full-year free cash flow growth expectation to more than $1 billion after software revenue grew 9% and transaction processing rebounded 10%.
