IBM Lowers Full-Year Revenue Forecast After Missing Q2 Profit Expectations

Q2 Financial Results Below Expectations

IBM reported second-quarter adjusted earnings per share of $2.93 against an expected $2.97, and revenue of $17.16 billion compared to an anticipated $17.58 billion. The company's revenue grew 1% year over year in the quarter. Net income decreased to $2.17 billion, or $2.30 per share, from $2.19 billion, or $2.36 per share, a year ago.

Full-Year Forecast Reduced

IBM lowered its 2026 constant-currency revenue growth forecast to 4% to 5%, down from its previous expectation of over 5%. This adjustment follows an earnings warning issued last week. The company reiterated its expectation for $1 billion in higher free cash flow for the year.

Impact of Z Mainframe Sales

CEO Arvind Krishna cited worse-than-planned performance in sales of Z mainframe computers and transaction processing software as a primary reason for the revised outlook. Organizations reportedly rushed to purchase hardware ahead of expected price increases, impacting current sales. Revenue from infrastructure, which includes Z mainframes, declined 7%, with Z mainframe revenue specifically falling 42%.

Segment Performance and Strategic Initiatives

The high-margin software segment generated $7.76 billion in second-quarter revenue, an increase of 5%. Consulting revenue remained flat at $5.33 billion. During the quarter, IBM signed a letter of intent to build a U.S. quantum chip foundry and introduced Bob, an artificial intelligence coding tool adopted by over 80,000 employees.

Productivity Focus to Improve Margins

Despite the financial misses, IBM's shares rose 1% in extended trading after the company stated its aim to widen its full-year pre-tax margin by approximately 1 percentage point. This will be achieved through higher productivity, including scaling software development with AI, increasing sales and marketing effectiveness, and optimizing its supply chain.