After the earnings announcement, the company's shares fell 2.4 percent.
The company posted fourth-quarter earnings excluding items of $6.13 per share, up from $5.39 a share in the year-earlier period.
Analysts had expected IBM to report earnings excluding items of $5.99 a share on $28.25 billion in revenue, according to a consensus estimate from Thomson Reuters.
Revenue decreased to $27.70 billion from $29.30 billion a year ago.
This is the fourth straight quarter that the company's revenue has fallen short of analysts' targets.
"In view of the company's overall full-year results, my senior team and I have recommended that we forgo our personal annual incentive payments for 2013,'' Chief Executive Ginni Rometty said in a statement.
Sales from its system and technology unit, which includes servers and storage, fell 26.1 percent to $4.26 billion. Revenue from global technology services, its largest business, fell 3.6 percent to $9.92 billion.
Software revenue was the only bright spot, growing 2.8 percent to $8.14 billion.
IBM has been moving steadily into higher-margin businesses such as software and cloud computing as it is struggling to sustain growth through its emerging markets business.
Looking froward, IBM forecast current-year adjusted earnings of at least $18.00 per share vs. $17.97 expected by Wall Street analysts.
Net income for the fourth quarter rose to $6.2 billion, or $5.73 a share, from $5.8 billion, or $5.13 per share a year earlier.
-By CNBC.com with Reuters
image: © Patrick Finnegan