Excluding the Lotus purchase, IBM said its profits rose to $1.3bn, or $2.30 a share, compared with earnings of $689m, or $1.18 a share, in the same period of 1994. Including the Lotus purchase, IBM lost 96 cents a share for the quarter.
The world's largest computer company said it planned to take an additional charge of $800m in the fourth quarter to pay for reorganisation, including "limited" staff cuts.
Sales were $16.8bn, an increase of 9 per cent on the $15.4bn in sales it recorded a year earlier. The results disappointed Wall Street, as the pre-charge earnings of $2.30 a share fell short of the average forecast of $2.42 a share. Shares fell $1.50 to $92.25 in early trading in New York.
Lou Gerstner, chairman, said: "Our hardware sales were disappointing in the third quarter, largely due to supply imbalances in System/390 servers and high-end storage products.
"However, it is encouraging that, given the breadth of our product line, we were able to report good results overall," he said. Hardware sales were essentially flat in the quarter, at $7.8bn, but revenues in all regions were up.
IBM said its RS/6000 workstation and its storage product revenues were up compared with the year-ago period, and that personal computer sales also increased.
However, AS/400 minicomputer family revenues declined due to a product transition to new models, expected this quarter. Mainframe revenues fell because of ongoing price cuts and supply shortages.
IBM's software sales continued to show solid growth and services and revenues of its component products continued strongly. The company said the number of users of Lotus Notes - groupware for collaborative, team- based working - also increased "significantly" in the quarter, but was not more specific. It also said it was an excellent quarter for Lotus's electronic mail software.
"I'm particularly pleased with the product performance from Lotus this quarter - the first quarter that Lotus has been part of the IBM family," Mr Gerstner said. "Equally important, the IBM-Lotus integration efforts are moving forward quickly and effectively."