US-based technology giant IBM’s Chairman and CEO Arvind Krishna acknowledged underestimating customers’ move towards artificial intelligence (AI) infrastructure, leading to a revenue setback in the second quarter. Krishna, in a letter to investors, expressed that IBM had not promptly adjusted to the significant shift in capital expenditure towards AI-related servers, storage, and memory, causing a shortfall in revenue. The company faced challenges as clients redirected their technology budgets to secure AI infrastructure due to supply chain disruptions and impending price hikes.
IBM revealed preliminary second-quarter revenue of $17.2 billion, marking a 1% increase year-on-year, but this announcement triggered a 25% drop in IBM shares. Despite a 5% rise in software revenue and steady consulting revenue, infrastructure revenue saw a 7% decline. The diluted earnings per share for IBM decreased by 2% to $2.27, while the operating (non-GAAP) earnings per share rose by 5% to $2.93. Krishna attributed the revenue shortfall mainly to the Z mainframe business’s weaker performance and associated software, particularly transaction processing software.
Krishna emphasized IBM’s ongoing aggressive investments in artificial intelligence and quantum computing, despite the disappointing quarter results. He expressed confidence in the company’s portfolio strength and strategic business transformation. IBM is currently finalizing its quarterly financial statements, with the complete second-quarter results set for release on July 22.
