IBM’s latest earnings report was as bad as expected, with the company falling short of Wall Street’s expectations despite generating $17.2 billion in revenue and $2.2 billion in net earnings for the quarter. The 115-year-old company’s results were impacted by a decline in its mainframe business, which was down 42%.
The company’s stock tanked 25% after CEO Arvind Krishna warned investors of the poor earnings ahead of time, its biggest single-day decline ever.
The mainframe business is a significant source of revenue for IBM, with the company earning $3 in software revenue for every $1 of mainframe hardware it sells, according to CFO Jim Kavanaugh.
During the quarterly call with investors, Krishna and Kavanaugh insisted that the decline was a temporary issue. They explained that several customers had opted not to buy new mainframes during the quarter, instead choosing to allocate their budget to other areas due to high cost increases of 15% to 30% for data center gear and PCs.
Krishna said that these customers would still buy their new mainframes eventually, along with their new software contracts, and that some had already done so this quarter.
The decline in mainframe sales may be attributed to the same AI boom that had previously lifted IBM’s sales, as customers opted for other hardware instead. Enterprise hardware makers like Dell and HP have also warned of rising costs on components like memory, caused by the AI build-out boom.
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Despite the decline, Krishna promised that customers would still invest in mainframes, and that the company saw no evidence of clients moving off the mainframe. It remains to be seen whether AI will have a lasting impact on the business.
IBM lowered its full-year growth forecasts due to the poor quarterly results, which will impact the rest of the year.
As the company looks to the future, it will be important to monitor its progress in the mainframe business and its ability to innovate and stay competitive in a rapidly changing tech industry. The tech industry has predicted the death of the mainframe for many decades now.
The mainframe business is still a vital part of IBM’s operations, and the company will need to find a way to revive it if it wants to meet its growth forecasts.
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