Feb 3 (Reuters) - Kyndryl ( KD ) on Monday missed Wall

Street estimates for third-quarter revenue, as strong AI-linked

sales were offset by a strong dollar and the IT services

provider's shedding of lower-margin deals.

The company - the former infrastructure services business of

IBM ( IBM ) - derived more than 74% of its total sales in the

third quarter from outside the U.S., making the company

susceptible to impacts from changes in foreign exchange rates.

Kyndryl's ( KD ) December-quarter revenue of $3.74 billion missed

analysts' average estimate of $3.81 billion, according to data

compiled by LSEG.

Still, Kyndryl ( KD ) saw strong demand for its services from

businesses adopting generative AI technology.

In the third quarter, Kyndryl ( KD ) recognized $300 million in

revenue tied to customers using services from large-scale cloud

providers and now expects to exceed its "hyperscaler" revenue

target of nearly $1 billion in fiscal year 2025.

Chinese AI startup DeepSeek's breakthrough last month on

quick advances with models that it claimed can match or even

outperform Western rivals at a fraction of the cost had stirred

doubts about high costs of GenAI development.

"I do expect that everyone will try to understand what

DeepSeek has accomplished and how relevant it is for them,"

Kyndryl ( KD ) Chief Executive Martin Schroeter told Reuters in an

interview.

"There's a long list of challenges that they (customers)

need to tackle and every available technology will be

evaluated," Schroeter said in response to questions about

customers adopting DeepSeek's technology.

Kyndryl ( KD ) had also inherited multiple no-margin contracts from

IBM ( IBM ) and has been looking to re-work them to generate higher

profits.

The company recorded adjusted net income of $124 million in

the third quarter, beating estimates of $64 million.