Big Blue told investors that full-year revenue growth will be lower than previously forecast.
The warning came one week after IBM suffered its worst single-day stock loss in history, when executives previewed disappointing results and spooked the market.
IBM posted second-quarter earnings on Wednesday, confirming the figures it had flagged in a rare early warning. That move erased about $67 billion in stock market value.
Big Blue’s infrastructure revenue fell seven per cent from a year earlier to $3.8 billion.
The unit was dragged down by weaker-than-expected sales of data centre mainframes, which slumped 42 per cent.
IBM now expects full-year revenue growth of between four and five per cent. Earlier this year, the outfit had projected full-year growth of more than five per cent.
IBM chief executive Arvind Krishna said the company is in the “early innings of a structural shift for business.”
Krishna said he still believes IBM is well placed across software, infrastructure and consulting to help customers squeeze value from artificial intelligence.
“With the portfolio we have and the opportunities ahead, it comes down to execution That is where we fell short in the second quarter,” Krishna said.
IBM earned $2.2 billion on revenue of $17.2 billion for the three months. It still expects full-year free cash flow to rise by about $1 billion from last year.
IBM chief financial officer James Kavanaugh told The Wall Street Journal that the company failed to close “tens of deals” in the second quarter.
Since then, Big Blue has closed roughly a third of those deals, Kavanaugh said, adding that its strategy has not changed.
Krishna said that gives IBM “good indication that this was deferral and not destruction.”
IBM took the rare step of pre-announcing its results on 14 July in an investor letter, where Krishna wrote that the company had “faltered.”
The disclosure sent IBM shares down 25 per cent, and they have dropped another five per cent since then. Krishna blamed the miss partly on customers shifting late-quarter budgets towards servers, storage and memory to lock in AI hardware before prices rose.
He said some clients paused deals while reassessing cybersecurity spending.
“I actually believe that even our clients had every intention, until about a month before, that they were going to consummate these deals,” Krishna said. He suggested customers “had not really thought through” how much their spending on other hardware was rising.
“When they were faced with that issue, then they decided to move budget to those areas,” Krishna said.
IBM does not expect supply chain constraints in the AI infrastructure market to improve soon.
“Everyone in the industry is saying this will extend for a period of time,” Kavanaugh said.
The board is expected to meet again in late July, with impatient investors unlikely to stomach several more weak quarters.
Much of IBM’s revenue is tied to its data centre business, where it sells mainframes to enterprise customers such as financial services firms and retailers.
Kavanaugh said IBM’s infrastructure business should grow in the second half of the year, despite the ugly quarter. Mainframe sales are still expected to be lower than last year.
Some fear AI tools could help enterprises modernise workloads and move off mainframes entirely, renting capacity from cloud providers instead. Kavanaugh said IBM sees “no evidence of clients moving off mainframe.”
