Key Highlights
- Big Blue lowered its 2026 revenue growth projection to 4%ā5%, retreating from previous guidance exceeding 5%
- Mainframe Z series sales plummeted 42% during the second quarter, pulling infrastructure revenue down 7%
- Second-quarter revenue reached $17.16 billion, falling short of the $17.58 billion analyst projection
- Adjusted earnings per share of $2.93 missed Wall Street’s $2.97 expectation
- Arvind Krishna, Chief Executive, attributed shortfall to “large capex deals” at major customers being postponed, insisting demand is “deferred, not destroyed”
International Business Machines trimmed its full-year revenue growth projection on Wednesday following a quarterly earnings miss that saw client companies scale back software purchases to finance artificial intelligence infrastructure investments.
Shares of IBM initially climbed approximately 2% after the earnings announcement before retreating. The technology giant had already experienced a devastating 25% decline on July 14 when it issued an earnings warning ā marking its worst single-session loss in over a century.
International Business Machines Corporation, IBM
Second-quarter sales totaled $17.16 billion, representing a modest 1% increase from the year-ago period but trailing the $17.58 billion consensus forecast. Adjusted profit per share of $2.93 likewise fell short of the $2.97 analyst estimate.
IBM is now targeting fiscal 2026 revenue expansion of 4% to 5%, dialing back from its earlier outlook calling for growth “above 5%.” The revised midpoint trails the average Street projection of 4.8% expansion.
Chief Executive Arvind Krishna addressed the disappointment directly during the earnings conference call. “It comes down to execution. That is where we fell short in the second quarter,” Krishna stated. “A lot of the demand is deferred, not destroyed.”
Krishna attributed the majority of the shortfall to “large capex deals at large clients” that failed to materialize during Q2. He noted that approximately one-third of those transactions have subsequently closed during the ongoing third quarter.
Z Series Mainframe Sales Suffer Sharpest Decline
Revenue from Z mainframe systems collapsed 42% in the second quarter, a more severe downturn than management had projected. Chief Financial Officer Jim Kavanaugh indicated that IBM had anticipated merely “a point or two” of headwind from the mainframe cycle but instead experienced more than five percentage points of growth drag.
Kavanaugh emphasized that enterprise customers remain committed to mainframe technology. “We see no evidence of clients moving off a mainframe,” he stated, expressing optimism that the division will strengthen during the latter half of the year.
Total infrastructure revenue declined 7% to $3.84 billion. Consulting division revenue remained unchanged year-over-year.
Software division sales advanced 5% to $7.76 billion, though this lagged the $7.88 billion Street estimate and represented a sharp deceleration from 11% growth recorded in the first quarter.
Expense Reduction Efforts and Breakup Speculation
Kavanaugh disclosed that IBM is elevating its cost-reduction target beyond $5.5 billion in annualized run-rate savings by year-end ā an increase from the previous $5.5 billion objective. He noted these efficiency measures enabled the company to boost operating income 5% and widen margins 30 basis points despite minimal revenue growth.
Addressing rumors regarding a possible company split, Kavanaugh firmly rejected the notion. “We remain confident IBM is strongest as an integrated company,” he declared.
CFRA analyst Brooks Idlet provided a balanced perspective: “For the broader software sector, this should be treated as a positive print, with IBM’s software woes more likely to reflect specific IBM-related hardware issues.”
Company inventory levels increased $600 million compared to the prior year, with Kavanaugh explaining that he strategically purchased server storage components in anticipation of supplier price hikes.
Analysts have reduced earnings per share forecasts for both 2026 and 2027 following the mid-July warning. Thomas Martin of Globalt Investments characterized the situation bluntly: “It’s going to be in the penalty box for a while.”
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