Shares of the world's largest technology services company fell about 5 per cent in after-market trading on Monday.
IBM is deep in transition, and has been selling businesses such as low-end servers, cash registers, and semiconductors to focus on high-growth areas like security software, cloud services and data analytics.
The company, which sold its x86 server business to Lenovo Group Ltd last year, has continued realigning its operations by paying contract-chipmaker Globalfoundries Inc to take over its loss-making semiconductor unit this month.
Revenue from what the company calls "strategic imperatives", which include cloud and mobile computing, data analytics, social and security software, rose about 20 per cent, yet the new businesses have so far failed to make up for revenue lost to divestitures.
IBM said it expected third-quarter revenue to be the same as revenue from the first quarter, or about $19.6 billion.
Revenue from its software business fell 10 per cent to $5.8 billion from a year earlier.
Revenue from global technology services such as outsourcing fell 10 per cent, hurt by weak discretionary IT spending by clients.
"Traditional software and services remain under pressure across IT, and we believe M&A remains one of the only glimmers of hope to restore growth back to these traditional tech giants that are starving for growth," Daniel Ives, an analyst at FBR Capital Markets, said.
Armonk, New York-based IBM's total revenue fell to $20.81 billion in the second quarter ended June 30, from $24.05 billion a year earlier, missing the average analyst estimate of $20.95 billion, according to Thomson Reuters I/B/E/S.
IBM's quarterly results were also hurt by the strong dollar. The company, which gets more than half its revenue from overseas, said it expected a slightly greater currency impact in the second half of the year.
Consolidated net income dropped to $3.45 billion, or $3.50 per share, for the second quarter, from $4.14 billion, $4.12 per share, a year earlier.
Excluding items, IBM earned $3.84 per share, beating the average analyst estimate of a profit of $3.78.
Up to Monday's close of $173.22, the company's shares had risen about 8 per cent this year.
© Thomson Reuters 2015