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IBM stock drops 25% as AI buying hits mainframes
IBM says customers shifted Q2 budgets from Z mainframes to servers, storage, and memory amid AI-driven supply fears, sending the stock down more than 25%.
Image: The Register
IBM says a late-quarter rush to buy servers, storage, and memory amid AI-driven supply fears derailed its Z mainframe sales in Q2, helping trigger a more than 25 percent drop in the company’s share price on Tuesday.
Ahead of its full calendar Q2 earnings release next week, IBM unusually published preliminary results along with a letter from CEO Arvind Krishna explaining why the quarter missed expectations. The biggest weakness was in Infrastructure, where revenue fell 7 percent despite what IBM had earlier called the strongest launch of a mainframe generation in its history.
Krishna said the problem was not a sudden pullback from mainframes, but a scramble by customers to lock in hardware before supplies tightened further and prices rose.
“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.”
He added that IBM expected some disruption from supply chain pressure, but “did not anticipate the magnitude of the capex reprioritization.”
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The shift hit more than hardware. Fewer mainframe deals also dragged on software sales, because IBM typically sells transaction-processing software alongside those systems. Krishna also cited “rapidly evolving, industry-wide cybersecurity concerns” as another factor affecting customer decisions, though he did not give details.
IBM said it shares responsibility for the miss.
“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.”
There were still bright spots. Red Hat revenue grew 11 percent. Recent acquisitions including HashiCorp and Confluent performed strongly. IBM’s Distributed Infrastructure business posted record reported growth of 37 percent, driven by Power servers and storage systems.
For at least one quarter, IBM’s customers appear to have decided that scarce AI-era hardware mattered more than the latest mainframe.
Enterprise Editor
Marcus follows the money. He covers enterprise software, cloud architecture, and the tectonic shifts in Big Tech strategy. He translates dense earnings calls and complex M&A activity into actionable insights about where the industry is actually heading. If a tech giant makes a silent pivot, Marcus is usually the first to notice.
via The Register
