IBM has missed Wall Street estimates for quarterly revenue, hurt by a rare sales decline in its software unit as clients shied away from longer-term deals due to pandemic-induced economic uncertainty.
The 109-year-old firm is preparing to split itself into two public companies.
The namesake firm will focus on the so-called hybrid cloud, where companies use a combination of their own data centres and leased resources to manage and process data.
Revenue from its cloud-computing business rose 10% to a record $7.5 billion in the fourth quarter, with IBM saying it is confident of returning to sales growth in 2021 and expected revenue to grow in mid-single digits after the separation.
That was not enough to convince investors, however, as the company's shares dropped 6.7% to $122.98 in extended trading after IBM's fourth consecutive quarter of sales decline.
"Our performance reflects the fact that our clients continue to deal with the effects of the pandemic and broader uncertainty of the macro environment," chief executive Arvind Krishna, who took helm last April, said.
"This puts additional pressure on larger software transactions this quarter and project delays in some services engagements," the CEO added.
Sales from cloud and cognitive, which houses IBM's software offerings and its biggest unit, declined 4.5% to $6.8 billion after two years of growth.
But IBM's chief financial officer James Kavanaugh told Reuters an accelerated move to cloud by businesses, a sales rebound in the global business services unit and a weaker dollar make the company confident of returning to revenue growth this year.
Total revenue fell 6.5% to $20.37 billion, missing analysts' average estimate of $20.67 billion, according to IBES data from Refinitiv.
Excluding items, IBM earned $2.07 per share, above estimates of $1.79.