IBM mainframe revenue crashes 42% as customers prioritize AI infrastructure over legacy systems
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[1]
After shocking quarter, IBM insists that AI isn't killing the mainframe
On Wednesday, IBM officially reported earnings and the news was as bad as everyone knew it would be. While the 115-year-old company still generates boatloads of cash -- $17.2 billion in revenue, $9.9 billion in gross profit, nearly 58% margins, and $2.2 billion in net earnings for the quarter --
[2]
IBM insists AI didn't kill software deals, just delayed them
Big Blue says customers postponed rather than abandoned major purchases as hardware soaked up enterprise budgets IBM is asking investors to view calendar Q2's software wobble as merely a temporary AI-induced panic attack, insisting the delayed deals that triggered one of its steepest stock slides
[3]
IBM cuts yearly revenue growth forecast as customers prioritize AI infrastructure spending
July 22 (Reuters) - IBM (IBM.N), opens new tab cut its annual revenue growth forecast on Wednesday, days after shocking Wall Street with a warning that corporate spending was shifting toward AI-focused data-center gear at the expense of its software and mainframe computers. Shares of the Armonk,
[4]
IBM's Krishna tries to reassure investors that AI won't disrupt company's software unit
IBM CEO Arvind Krishna said that only 2% of his company's software could be replaced with applications constructed by artificial intelligence models, as he seeks to reassure Wall Street following disappointing second-quarter results. "The rest of our software really helps people get ready for AI,
[5]
Deferral, not destruction - one dodgy quarter isn't the end of the world, insists IBM CEO Arvind Krishna as the AI buying shift hits home
We were warned it would be messy and so it was. Just over a week ago, IBM suffered its largest one day share price drop in its history when it pre-announced that the shift in buying patterns on the back of the AI hype cycle is undermining its traditional sources of revenue. CapEx spending has
[6]
IBM cuts outlook as software and mainframe weakness weighs on results
A week after shocking investors with a disappointing preliminary earnings forecast that missed estimates, IBM Corp. today reported financial results that missed estimates on both revenue and profit. The company also lowered its full-year revenue forecast, blaming customers' shifting their spending
[7]
IBM cuts annual revenue growth forecast as customers prioritize AI infrastructure spending
IBM reduced its annual revenue growth forecast on Wednesday. The company also missed profit and revenue expectations for the second quarter. This shift occurred as corporate spending moved towards AI data-center gear. IBM's Z mainframe revenue slumped significantly, impacting overall infrastructure
[8]
IBM CEO says only 2% of its software faces AI risk
International Business Machines (IBM) CEO Arvind Krishna has spent the past 10 days apologizing. On July 14, he told shareholders his company had faltered. Eight days later, he opened the second-quarter earnings call by admitting that IBM fell short on execution. Krishna then told CNBC on
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IBM reported its worst quarterly performance in recent history, with mainframe revenue plummeting 42% as enterprise customers redirected budgets toward AI data center hardware. CEO Arvind Krishna insists the weaker-than-expected earnings reflect temporary deferrals rather than permanent shifts, claiming a third of delayed deals have already closed. The company cut its annual revenue growth forecast amid concerns about the AI buying shift.
IBM Faces Historic Stock Decline After Warning Investors
IBM experienced its steepest single-day stock decline ever, dropping 25% after CEO Arvind Krishna took the unprecedented step of warning investors about weaker-than-expected earnings before the official quarterly report
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. The 115-year-old company reported $17.16 billion in revenue for the second quarter, missing Wall Street estimates of $17.58 billion, while net profit fell to $2.17 billion3
. The market reaction wiped $69 billion off IBM's market capitalization, marking a dramatic reversal for a stock that had performed well during Krishna's six-year tenure5
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Source: ET
Mainframe Revenue Plunges as AI Infrastructure Spending Surges
The primary culprit behind IBM's disappointing quarter was a 42% collapse in mainframe revenue, which created cascading problems across the business
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. CFO Jim Kavanaugh explained that IBM earns $3 in software revenue for every $1 of mainframe hardware sold, making the infrastructure shortfall particularly damaging1
. The shift in corporate spending occurred as customers prioritize AI infrastructure purchases, redirecting budgets toward servers, storage, and memory to secure supply-constrained equipment ahead of expected price increases ranging from 15% to 30%1
. Infrastructure revenue fell 7% to $3.84 billion, while the mainframe stack of hardware and transaction processing software impacted growth by over five points in the quarter3
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Source: Reuters
Software Deals Delayed as Enterprise Budgets Shift
In the final weeks of June, tens of large deals failed to close on expected timelines as clients emptied their wallets on data center hardware costs first
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. Software revenue rose just 5% to $7.76 billion, missing estimates of $7.88 billion, while transaction processing software declined 9%3
. Many customers purchase mainframe and associated software through enterprise license agreements treated as capital expenditures, creating direct competition with AI infrastructure investments5
. Krishna emphasized that about a third of delayed deals have already closed in the first three weeks of the new quarter, describing the situation as "deferral and not destruction"2
.Related Stories
Revenue Growth Forecast Cut Amid AI Buying Shift
IBM lowered its annual revenue growth forecast to between 4% and 5%, down from previous expectations of more than 5% growth
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. The company also reduced software revenue growth expectations to 6% to 8% for the year, a significant drop from January's confident prediction of double-digit growth4
. Krishna told investors that 75% of deals that slipped from the second quarter should return before year end4
. Despite the challenges, the z17 mainframe remains at nearly 130% program to program performance, well ahead of the z16, which was previously the strongest on record5
.AI Won't Disrupt Software Unit, Krishna Argues
Addressing concerns that AI won't disrupt software unit operations, Krishna stated that only 2% of IBM's software could be replaced with AI-generated applications
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. He emphasized that the rest of IBM's software helps clients prepare for AI through hybrid cloud infrastructure, data management, and automation4
. The company introduced Project Lightwell, a new service that uses AI to remediate security vulnerabilities in legacy open source packages, with subscriptions priced at $1 million per year2
. Early adopters include Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Mastercard, Morgan Stanley, Visa, and Wells Fargo2
. Krishna described this as a "multibillion-dollar" opportunity, positioning IBM to sell enterprises AI tools to address security issues that Anthropic's Mythos AI is helping to uncover2
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Source: SiliconANGLE
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