IBM has issued a profit warning, wiping a quarter off its market value.
According to the Financial Times Big Blue had been banking on strong sales of mainframes and related software, but corporate clients legged it towards servers and storage elsewhere. The rush came ahead of expected price rises caused by the AI boom’s appetite for scarce infrastructure.
IBM chief executive Arvind Krishna said: “These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.”
Shares closed 25 per cent lower, marking the company’s biggest fall since at least 1972. The plunge was worse than its slide during the 1987 Black Monday crash.
Infrastructure revenue fell seven per cent in the second quarter, IBM said, against expectations for a low single-digit decline. Software revenue rose five per cent.
Overall revenue came in at $17.2 billion, up one per cent from the same period a year earlier, but below analyst estimates of $17.8 billion. Earnings per share slipped two per cent to $2.27 and missed forecasts.
The warning shows the scale of IBM’s problem as it tries to stop looking like a mainframe and hardware outfit. It wants investors to see a faster-growing software group, which is easier said than done.
IBM has spent tens of billions of dollars on acquisitions, including Red Hat, HashiCorp and Confluent. Now the AI spending cycle is dragging corporate budgets towards computing infrastructure and away from established software businesses.
Krishna had pitched the Confluent buy in December as a chance to “deploy generative and agentic AI better and faster”. That sounded neat until customers started chasing supply-constrained kit before prices went north.
Krishna admitted IBM had failed to anticipate the “magnitude” of the shift in spending as clients raced “to secure supply-constrained infrastructure ahead of expected price increases”. He said customers had been “distracted” by “rapidly evolving, industry-wide cyber security concerns”.
The US outfit has struggled to calm investors worried about older software companies. In February, IBM shares dropped after Anthropic said its Claude Code AI tool could help modernise a programming language used on IBM mainframes.
