IBM cut its full-year revenue growth target to 4 to 5 percent in constant currency on July 22, a trim that sent shares sharply lower after the bell. The company reported second-quarter revenue of $17.16 billion and adjusted EPS of $2.93. CEO Arvind Krishna said customers shifted late-June capital budgets into servers, storage and memory to secure constrained AI infrastructure, deferring mainframe and transaction-processing software purchases that hit near-term revenue. The company reiterated plans to raise free cash flow by about $1 billion for the year and to widen full-year pre-tax margins by roughly one percentage point.

In a July 22 letter to investors and in the company's earnings release, Arvind Krishna described the quarter as one in which IBM "faltered." He said the shortfall reflected a customer rush to buy hardware before expected price increases, which pushed several large transactions beyond the end of June. Krishna added that a big portion of the delayed business was deferred rather than lost, and that roughly one third of that business closed in the first weeks of the third quarter.

What changed in IBM's guidance?

IBM now expects 4 to 5 percent revenue growth in 2026 at constant currency, down from a prior target of more than 5 percent. The company disclosed those figures on July 22 in its earnings materials and in Krishna's investor letter. IBM left intact its other targets, reiterating an objective to boost free cash flow by about $1 billion for the year and to expand full-year pre-tax margins by roughly one percentage point through productivity gains.

Why did the quarter miss Wall Street estimates?

Revenue for the second quarter came in at $17.16 billion, short of the LSEG consensus of $17.58 billion. Adjusted EPS was $2.93, versus a $2.97 consensus. On a segment level, IBM said high-margin software remained resilient at $7.76 billion, up 5 percent year on year, and consulting revenue held roughly flat at $5.33 billion. Infrastructure revenue fell 7 percent, with Z mainframe revenue down about 42 percent year on year, a key driver of the top-line miss.

Krishna's plain assessment was blunt. "We didn't adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected," he wrote. That admission pins the miss to timing and customer buying patterns rather than a permanent loss of demand.

Markets punished the uncertainty. Shares suffered a sharp one-day drop when preliminary results arrived the prior week and were down roughly 30 percent year to date as of July 22. Investors have been sensitive to any sign that legacy businesses tied to mainframes and transaction processing are losing traction as customers reallocate spend toward AI infrastructure.

IBM is pressing a three-part operational response. It aims to scale software development with AI, improve sales and marketing effectiveness, and optimise the supply chain to protect margins. The company also flagged strategic bets: a letter of intent to build a U.S. quantum chip foundry and the roll-out of an internal AI coding tool called Bob, which IBM says has been adopted by more than 80,000 employees. My read is that the revenue trim will headline the reaction, but the claim that much of the work is deferred matters more for cash flow and margin targets.

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IBM reiterated its full-year free cash flow improvement target of about $1 billion and a plan to widen pre-tax margins by roughly one percentage point, facts that will shape how investors judge whether the missed deals are a timing issue or the start of a structural shift. Investors will be watching early Q3 deal closures and the next quarterly update for evidence that the delays were timing, not structural.

This article was created with AI assistance.