International Business Machines warned of a hit to earnings as the launch of its flagship enterprise mainframe designed for the AI-age stumbled and customers shifted their spending toward servers, storage and memory products ahead of expected price increases.
IBM said the performance of its software and infrastructure business fell short of expectations in the second quarter, sending its share price down 23% in premarket trading Tuesday.
In a letter to investors Tuesday, Chief Executive Arvind Krishna said the weakness in IBM's infrastructure arm was worse than anticipated, driven by a shortfall for the company's z17 mainframe. The company expects a 7% decline in infrastructure revenue.
For its latest quarter, the company said it expects revenue of $17.2 billion and adjusted earnings of $2.93 a share. This compares with analyst targets of $17.9 billion and $3.01 a share.
IBM said it expects second-quarter earnings per share will be down 2% on a year earlier at about $2.27, while its pretax income margin at a projected 14.4% is expected to have contracted 90 basis points.
The company previously said it would be wrapping on the launch of the z17 in the latest quarter, and infrastructure revenue would be down low-single digits for the year beginning this quarter.
Krishna said in the last few weeks of June, clients shifted their quarterly capital expenditure to secure supply-constrained infrastructure ahead of a rise in prices, which affected buying patterns.
In June, IBM launched its new z17 mainframe product, which is used by many of the largest banks and retailers. The new product allows customers to run multimodal predictive generative AI in a hybrid cloud environment.
"While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," Krishna said.
Additionally, clients were distracted with rapidly-evolving, industrywide cybersecurity concerns in the quarter, the company said.
Krishna said IBM didn't adapt and move quickly enough, and a number of large deals failed to close on the timelines expected, driving the shortfall.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
July 14, 2026 08:03 ET (12:03 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
