IBM Cuts Forecast After Mainframe Slump, CEO Cites Temporary Shift

IBM's mainframe revenue plunged 42% in the second quarter, leading the company to cut its full-year revenue growth forecast to 4%-5% from over 5% Source: CNBC; CNA.

What happened

IBM reported Q2 revenue of $17.16 billion, missing estimates, and adjusted EPS of $2.93 vs. $2.97 expected Source: CNBC. The shortfall was driven by a steep drop in its Z mainframe business, which dragged infrastructure revenue down 7% Source: CNA. Software revenue rose 5% to $7.76 billion but fell short of expectations Source: CNA.

The cause

The company attributed the slowdown to customers diverting spending toward AI-related hardware, citing a near-60% spike in semiconductor prices Source: Fox Business. CFO Jim Kavanaugh noted that for every $1 in mainframe hardware revenue, IBM generates $3 in software, amplifying the impact Source: TechCrunch.

CEO's reassurance

CEO Arvind Krishna said one-third of deals that slipped from Q2 have already returned Source: Fox Business and that 75% should come back by year-end Source: CNBC. He argued that only 2% of IBM's software is at risk from AI replacement Source: CNBC, and emphasized that clients are not moving off mainframes . IBM maintains its free cash flow guidance of $1 billion improvement for 2026 .