Total sales at the US technology company fell four per cent to $23.7bn (£14.9bn) for the three months to the end of September, largely due to hefty declines at its hardware division and in emerging markets.
However, improved margins meant profits edged up slightly to $4bn.
“In the third-quarter we continued to expand operating margins and increased earnings per share, but fell short on revenue,” said Ginni Rometty, IBM’s chairman and chief executive.
IBM faces a fight to remain competitive in an age when computing power and services can be rented over the internet, reducing the need for companies to buy equipment outright.
Revenue from IBM’s own cloud computing division is up more than 70 per cent so far this year but it faces tough challenges from upstart rivals.
Shares in the company slid five per cent in after-hours trading.