IBM shares tanked on Tuesday after the tech giant released preliminary second-quarter results that fell short of Wall Street's expectations.
The company reported revenue of $17.2 billion, up just 1% and below analyst forecasts, with infrastructure revenue down 7%.
In a letter to investors on Tuesday, CEO Arvind Krishna said the company "faltered," blaming large deals that failed to close and clients redirecting spending toward servers, storage, and memory amid expected price increases driven by the global memory shortage.
Underneath a summary of the company's results, Krishna said IBM had underestimated the "magnitude" of clients changing spending habits, and didn't adapt quickly enough.
You can read Krishna's full letter below.
I want to spend some time explaining what we experienced in the quarter that led to the Software and Infrastructure performance shortfall you see above.When we discussed our expectations with you in April, we noted that we would be wrapping on the launch of z17 in the second quarter. Given this was the strongest start to a mainframe program in our history, we expected Infrastructure revenue to decline low-single digits for the year, beginning this quarter. What played out was worse than our expectations, driven by a shortfall in our Z performance and the associated software stack, primarily in Transaction Processing. In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. This dynamic impacted client buying patterns. While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization. In addition, clients were distracted with rapidly-evolving, industry-wide cybersecurity concerns in the quarter.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.These are not excuses, but they are realities. Our job is to help our clients through uncertainty, to find paths forward to grow their businesses no matter what is happening in the external environment.While our second-quarter results are disappointing, our performance in many areas showed strength, reinforcing the conviction we have in our portfolio and strategy.- Within Software, Red Hat revenue growth accelerated sequentially to 11 percent
- Recent acquisitions including both HashiCorp and Confluent delivered strong performance
- With clients prioritizing infrastructure investments, Distributed Infrastructure had its best performance in reported history, up 37 percent with strong growth in Power and Storage, and a backlog of approximately $500 million exiting the quarter
- Despite challenges this quarter, z17 remains at nearly 130 percent program-to-program, well ahead of z16 which was our strongest program on record, with clients representing 85% of installed MIPs maintaining or growing capacity
- Continued growth in Consulting signings led by strong GenAI contribution
- Productivity initiatives contributed to continued operating (non-GAAP) PTI Margin expansion in the quarter
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Georgia is a fellow at Business Insider's London office.Before joining Business Insider, she worked at Japan's largest newspaper, The Yomiuri Shimbun, and interned at the Financial Times. She is an NCTJ-qualified journalist with a degree in Philosophy from the University of Birmingham. You can contact her via email at [email protected]
