International Business Machines Corp. reported better-than-expected sales and affirmed its cash flow forecast in a sign that demand for software, mainframe computers and hybrid cloud services remain steady.

Sales rose 6.5 per cent to US$14.1 billion in the third quarter, the Armonk, New York-based company said Wednesday in a statement. Analysts, on average, estimated US$13.5 billion, according to data compiled by Bloomberg. IBM expects full-year revenue growth will exceed the company’s previous mid-single digit guidance while free cash flow will hit the estimate of US$10 billion.

The shares climbed about 4 per cent in extended trading after closing at US$122.51 in New York. IBM has been a relative safe haven in the tech market meltdown, falling only 8.3 per cent this year compared with a 36 per cent loss for the iShares Expanded Tech Sector ETF.

While Chief Executive Officer Arvind Krishna is betting IBM’s future growth on the lucrative market for cloud computing and artificial intelligence, mainframe sales helped its infrastructure unit generate a 15 per cent increase in revenue -- the fastest-growing division in the quarter. A new model should support mainframe sales through at least the first half of next year, Bank of America analyst Wamsi Mohan wrote in a note ahead of earnings.

Software sales jumped 7.5 per cent to US$5.8 billion, while consulting gained 5.4 per cent to US$4.7 billion. Revenue produced by Red Hat, the acquired division that has been a key part of Krishna’s turnaround strategy, increased 12 per cent, another comparatively slow quarter for a unit that has regularly posted growth of more than 20 per cent since the 2019 purchase.  

Big Blue’s internationally skewed sales continue to be damped by a historically strong US dollar. The company said currency fluctuations cut its third-quarter revenue by 9 percentage points and would slice full-year growth by about 7 percentage points.

The strong dollar is impacting margins and the company has responded by increasing prices for products and consulting, Chief Financial Officer Jim Kavanaugh said in an interview. Gross margin was 52.7 per cent in the period ended Sept. 30, more than 2 percentage points below analysts’ average estimate.

Earnings, excluding some items, was US$1.81 a share in the quarter, in line with estimates. The company reported a net loss of US$3.2 billion, impacted by a previously announced one-time US$5.9 billion pretax charge to offload pension obligations to two life insurers, Prudential Financial Inc. and MetLife Inc. 

Last November, IBM spun off a large portion of its legacy infrastructure services unit into a new company called Kyndryl Holdings Inc. Sales to Kyndryl continue to make up a significant portion of IBM’s revenue, including an additional 3.5 percentage points of full-year revenue growth in constant currency.