IBM Says AI Spending Delayed Mainframe Sales After Weak Quarterly Results

IBM reported a disappointing second quarter on Wednesday, missing Wall Street expectations and lowering its full-year growth outlook after a sharp decline in its mainframe business. Despite generating $17.2 billion in revenue, $9.9 billion in gross profit, nearly 58% gross margins and $2.2 billion in net earnings, the company’s results fell short of analyst forecasts and extended concerns that emerged after it issued an unusual warning to investors last week.

Before releasing its official earnings, IBM CEO Arvind Krishna informed shareholders that quarterly performance would be weaker than expected. The company cited disappointing results in its infrastructure business and pressure on profit margins, triggering a 25% drop in IBM’s share price, the largest single-day decline in its history.

Mainframe sales drive earnings miss.

IBM said revenue from its mainframe business declined 42% during the quarter, becoming the primary reason for the weaker financial performance. The slowdown also affected software revenue because the company typically generates additional software sales alongside every mainframe hardware purchase.

Chief Financial Officer Jim Kavanaugh told investors that IBM earns roughly $3 in software revenue for every $1 generated from mainframe hardware sales, making delays in hardware purchases especially significant for thecompany’ss broader business.

IBM says customers delayed, not cancelled, purchases

During the earnings call, Krishna and Kavanaugh maintained that the slowdown reflects postponed purchases rather than weakening demand. According to the company, dozens of customers who had been expected to buy new mainframe systems during the quarter instead redirected spending toward other technology investments.

Krishna said many enterprise customers faced sharp price increases of between 15% and 30% for data centre equipment and personal computers as AI-driven demand increased costs across the hardware industry. Faced with those higher expenses, some customers shifted budgets away from planned mainframe purchases.

"When they were faced with that issue, then they decided to move budget to those areas where they were having that extreme price," Krishna said.

Other enterprise hardware companies, including Dell and HP, have also warned that rising component costs linked to AI infrastructure demand have pushed prices higher. Apple has similarly acknowledged higher hardware costs.

IBM remains confident in the mainframe business

Despite the weak quarter, IBM executives said they have not seen evidence that customers are abandoning the mainframe platform. Krishna told investors that some delayed purchases have already been completed during the current quarter and expressed confidence that the remaining customers will eventually move forward with planned hardware upgrades and related software contracts.

"We see no evidence of clients moving off the mainframe," Krishna said.

Although the technology industry has repeatedly predicted the mainframe’s decline over several decades, IBM maintains that the recent slowdown reflects temporary budget decisions rather than a lasting shift away from its long-established enterprise computing platform.