The tech giant’s revenue fell almost 12% from a year earlier to $24.1bn (£15.9bn) from October to December.
Its net income also declined 11% to $5.5bn in the same time period.
The company’s earnings were impacted by the strong US dollar and its decision to move away from its hardware business to focus on higher-margin operations.
“We are making significant progress in our transformation, continuing to shift IBM’s business to higher value, and investing and positioning ourselves for the longer term,” said chief executive Ginni Rometty in a statement on Tuesday.
The company has been facing declining demand for servers and storage products.
In October, the firm said it would pay $1.5bn in cash to offload its loss-making chip manufacturing division to Abu Dhabi owned Global Foundries.
News of the earnings report sent the New York listed shares of the firm down 1.8% in after hours trading. Its shares were down more than 17% in the past year.
The company’s forecast for earnings this year also missed market expectations.
It expects operating earnings of $15.75 to $16.50 per share, just below a Reuter’s poll figure of $16.53.