RESEARCH TRIANGLE PARK – IBM’s revenue has dropped for the fifth quarter in a row, even with contributions from Red Hat, which it acquired in the third quarter. According to IBM’s CFO, Raleigh-based Red Hat has added 1,000 employees since the merger closed and revenue surged.

“The expansion of the client base and the revenue trajectory are good indications of our clients’ confidence in the value of Red Hat and IBM together,” said James Kavanaugh, IBM senior vice president and chief financial officer, in a conference call with Wall Street analysts.

“And in terms of confidence of the workforce, over the last several months, Red Hat hired about 1,000 new associates to address the growing demand for the Red Hat portfolio and hybrid cloud value proposition, while employee attrition has been stable year to year.”

On Wednesday, the tech giant reported overall revenue of $18 billion, down 3.9 percent (down 0.6 percent adjusting for divested businesses and currency).

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On the flip side, Red Hat’s revenue was up 19 percent (up 20 percent adjusting for currency), normalized for historical comparability.

“Our results demonstrate that clients see IBM and Red Hat as a powerful combination and they trust us to provide them with the open hybrid cloud technology, innovation and industry expertise to help them shift their mission-critical workloads to the cloud,”said IBM’s CEO Ginni Rometty said in a statement.

The results weren’t entirely unexpected.

IBM had already lowered its full-year earnings estimate to take into account the impact from Red Hat. The company dealt with   the suspension of share buybacks, an adjustment to the balance of deferred Red Hat revenue and equity and retention costs. The company also announced deals with AT&T, Avaya and the Bank of China, and it introduced the z15 mainframe.

“We continued our focus on the strength of our balance sheet in the third quarter,” said Kavanaugh. “We generated $12.3 billion in free cash flow over the last 12 months and with our disciplined financial management we reduced debt by nearly $7 billion in the quarter, while maintaining a strong cash balance.”

In a conference call with analysts, he touted the Red Hat contribution.

“This quarter, we continue to see good performance in the key high-value areas of data and AI, security, cloud and digital. We continue to bring new innovations to the market, launching our z15 mainframe and containerizing our software,” he said.

“And of course, we closed the acquisition of Red Hat where we’ve had a good first quarter, with Red Hat revenue growth accelerating to 20% on a normalized basis.”

Kavanaugh also pointed out that “Cloud & Cognitive Software was up 8% this quarter led by growth in cognitive applications and cloud and data platforms, including the contribution from Red Hat.”

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