IBM has lowered its full-year growth forecast after weaker mainframe sales contributed to a disappointing second quarter. The company generated $17.2 billion in revenue and $2.2 billion in net income, but both revenue and adjusted earnings fell below Wall Street expectations.
IBM now expects constant-currency revenue growth of 4% to 5% in 2026, down from its previous forecast of more than 5%. Revenue increased 1% from a year earlier, while gross profit reached $9.9 billion with a margin of 57.7%.
Mainframe Sales Weigh on Infrastructure Revenue
IBM’s infrastructure revenue fell 7% to $3.8 billion, according to its official second-quarter results. Revenue from IBM Z mainframes declined 42%, following strong sales after the latest system generation launched last year.
Software revenue rose 5% to $7.8 billion but also missed expectations. Chief Financial Officer Jim Kavanaugh said IBM typically earns about $3 in related software revenue for every $1 of mainframe hardware sold, making delayed system purchases more significant for the wider business.
Chief Executive Arvind Krishna said several dozen customers postponed planned mainframe purchases during the quarter. Some redirected their budgets towards servers, storage and personal computers after component shortages increased hardware prices by 15% to 30%.
Krishna said about one-third of the delayed mainframe transactions had already closed during the current quarter. He added that IBM had found no evidence that customers were abandoning the platform.
IBM Warned Investors Before Earnings
IBM disclosed preliminary figures through an unusual letter to investors one week before publishing its complete results. Krishna acknowledged that the quarter had fallen below the company’s expectations and warned that infrastructure revenue and profit margins were under pressure.
The disclosure sent IBM shares down 25% in one session, the largest single-day decline in the company’s history. The fall erased about $67 billion from its market value, according to Reuters.
AI Spending Changes Customer Priorities
IBM said the same AI infrastructure expansion that had supported technology spending also affected its quarterly performance. Customers facing higher prices for memory, servers and other equipment prioritised immediate purchases in those areas and deferred some IBM contracts.
The company maintained its expectation that annual free cash flow would increase by about $1 billion from 2025. IBM said the delayed mainframe demand was temporary, while its software, consulting and infrastructure operations would continue receiving investment.
Featured image credits: Wikimedia Commons
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