The tech giant reported earnings excluding items of $3.68 a share on revenue of $22.40 billion.
IBM had been expected to post earnings excluding items of $4.31 a share on revenue of $23.37 billion.
"We are disappointed in our performance. We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry," Ginni Rometty, IBM chairman, president and CEO said in a statement. "While we did not produce the results we expected to achieve, we again performed well in our strategic growth areas-cloud, data and analytics, security, social and mobile-where we continue to shift our business. We will accelerate this transformation."
The company also said it is no longer able to keep 2014 operating earnings per share forecast.
The news comes after the company announced plans to pay contract-chipmaker Globalfoundaries $1.5 billion to offload its loss-making chip business. As part of the deal, it will take a $4.7 billion pretax charge.
IBM shares were more than 5 percent lower in premarket trading following the announcement. (Get the latest quote here.)