IBM mainframe revenue plunges 42% as AI hardware costs disrupt corporate budgets
CEO Arvind Krishna attributes slump to temporary budget shifts rather than long-term platform abandonment, though full-year forecasts are lowered.
IBM reported a significant quarterly earnings miss, with revenue from its mainframe business falling 42% as corporate clients redirected capital to cover rising costs for AI-related hardware. The 115-year-old technology firm posted $17.2 billion in revenue, $9.9 billion in gross profit, and $2.2 billion in net earnings for the quarter. While the figures represent substantial cash generation, they fell well short of Wall Street expectations, prompting the company to lower its full-year growth forecasts.
The shortfall was severe enough that CEO Arvind Krishna and the board issued an unprecedented pre-warning to investors, stating results would be "worse than our expectations." This transparency failed to stabilise market sentiment, and IBM’s stock dropped 25% following the announcement. The decline marks the largest single-day drop in the company’s history, reversing the positive momentum the stock had built under Krishna’s six-year leadership, which had previously been buoyed by the broader AI data centre boom.
The primary driver of the revenue contraction was a delay in mainframe purchases by "tens" of corporate customers. These clients faced price increases of 15% to 30% for data centre gear and personal computers, driven by the high costs of AI build-outs. Krishna explained that enterprises chose to move their budgets toward these areas where extreme price pressures were impacting their operations, rather than proceeding with planned mainframe acquisitions.
CFO Jim Kavanaugh highlighted the cascading financial impact of the hardware slump during the quarterly call with investors. He noted that for every $1 of mainframe hardware sold, IBM earns $3 in software revenue. The delay in hardware sales therefore reduces not only immediate hardware income but also the associated software and maintenance contracts that generate significant additional value for the company.
Despite the sharp decline, Krishna insisted the issue was temporary and that clients have not abandoned the mainframe platform. He stated that some delayed customers have already resumed purchases within the current quarter. Krishna emphasised that there is no evidence of clients moving off the mainframe, dismissing long-standing industry predictions regarding the platform's obsolescence.
