As corporations' information technology (IT) budgets tilt toward data center gear such as servers and semiconductors for artificial intelligence (AI), IBM lowered its growth target for this year.
IBM said on the 22nd (local time) that it cut its forecast for this year's revenue growth rate to 4%–5% from more than 5%. Second-quarter revenue was $17.2 billion, up 1% from a year earlier but short of market expectations. Net income was $2.17 billion, down slightly from the same period last year.
Weakness in traditional core businesses dragged down results. With mainframe server revenue down 42%, revenue in the institutional sector infrastructure fell 7%. Software revenue rose 5%, but some large contracts slipped to the next quarter, resulting in lower-than-expected growth. Revenue in the consulting institutional sector was flat from a year earlier.
Corporations prioritized securing servers, storage, and memory in anticipation of supply shortages and price increases, pushing back software expenditure. After IBM signaled weak results on the 14th, the stock plunged 25.2% in a single day and has remained weak since.
However, revenue at Red Hat, the cloud software business, rose 11%, and revenue from distributed infrastructure, including servers and storage, increased 37%. IBM also maintained its outlook that free cash flow will increase by about $1 billion from last year.
IBM Chief Executive Officer Arvind Krishna emphasized that about one-third of the delayed large contracts have already been signed in the third quarter, saying the demand itself has not disappeared. IBM plans to restructure its business around AI, cloud, and quantum computing, while using Generative AI to boost productivity in software development, sales, and supply chain operations.