Net income rose 6 percent to $4 billion, or $3.68 a share, from $3.82 billion, or $3.33 a share, in the year-earlier period.
Excluding items such as retirement costs, earnings increased to $3.99 a share from $3.62 a share a year ago.
Revenue fell 4 percent to $23.72 billion from $24.75 billion a year ago.
Analysts had expected the company to report earnings excluding items of $3.96 a share on $24.75 billion in revenue, according to a consensus estimate from Thomson Reuters.
The company said its software revenue came in at $5.8 billion, shy of the $6 billion level analyst were expecting.
Edward Jones analyst Josh Olson said it was a disappointing quarter from a revenue standpoint.
"I think that the hardware business is going to be something they need to work through and growth markets are down much more than expected," he said.
IBM Chief Executive Virginia Rometty said in a statement the company "continued to expand operating margins and increased earnings per share, but fell short on revenue" and vowed to work to improve those parts of the hardware division and in emerging markets that were lagging.
Half the decline in emerging markets was in China, the company said.
Olson added that the services backlog was healthy, but "we are not seeing the conversion of that backlog into meaningful revenue."
IBM reiterated its full year 2013 outlook of non-GAAP earnings of at least $16.25 per share; analysts currently expect $16.89 a share.
- Reuters contributed to this article.
- Companies left hanging by D.C. debt delays
- Microsoft's CEO choice gets tough
- IBM down after hours; Problems in China
- Finding opportunities amid crisis
image: © Michael Coté