International Business Machines Corp. reported sales that topped analysts’ estimates on strong demand for its hybrid-cloud offerings, signaling continued momentum for its transition to a business fueled by cloud-based software and consulting.

First-quarter revenue rose 7.7 per cent to US$14.2 billion, compared with analysts’ average projection of US$13.8 billion, according to data compiled by Bloomberg. The sales results and comparison exclude much of IBM’s legacy infrastructure services unit, which was spun off in November into a new company called Kyndryl.

Chief Executive Officer Arvind Krishna is trying to spur revenue growth by steering IBM, which traditionally relied on infrastructure and information-technology services, into the fast-growing cloud-computing market. Last quarter, the company posted its biggest sales increase in a decade.

“Demand for hybrid cloud and AI drove growth in both Software and Consulting,” Krishna said Tuesday in a statement. “Today we’re a more focused business and our results reflect the execution of our strategy.”

The shares gained about 1.5 per cent in extended trading after closing at US$129.15 in New York. The stock has declined 3.4 per cent this year.

Still, IBM faces a crowded field of cloud rivals, even as companies shift more of their operations to the internet. By 2025, for example, 51 per cent of spending on information technology will be directed to the public cloud, up from 41 per cent this year, according to research firm Gartner Inc. Krishna wants IBM to distinguish itself by targeting a hybrid model, which helps clients store and analyze data across on-premises infrastructure, private cloud services and servers run by major public providers such as Amazon.com Inc. and Microsoft Corp.

Hybrid-cloud sales increased 14 per cent to US$5 billion, led by an 18 per cent increase for Red Hat, in the period ended March 31, the Armonk, New York-based company said in the statement. Software unit revenue jumped 12 per cent to US$5.77 billion and consulting sales gained 13 per cent to US$4.83 billion. Results from both units beat analysts’ average projections.

Sales in IBM’s infrastructure unit declined 2.3 per cent to US$3.22 billion. The company remains one of the biggest makers of mainframe computers, which have long-served as a foundation of a business’s most important applications, and earlier this month introduced its new z16 mainframe model. But even here IBM pitches the equipment as fitting into a hybrid-cloud environment.  

Profit, excluding some items, was US$1.40 a share in the quarter, compared with the average estimate of US$1.41 a share. Gross margin was 52.9 per cent, falling short of the average estimate of 54.4 per cent.

IBM said annual revenue growth would be at the “high-end of the mid-single digit range.” In January, the company projected 2022 sales would increase in the mid-single digits.