IBM Shares Plunge 25% as CEO Acknowledges AI Spending Shift Hurt Revenue

New Delhi–IBM Chairman and CEO Arvind Krishna acknowledged that the technology company underestimated the scale of customers’ shift toward artificial intelligence infrastructure spending and did not adapt quickly enough, contributing to weaker-than-expected second-quarter revenue.

In a letter to investors released alongside selected preliminary quarterly results, Krishna said IBM had anticipated some supply chain disruption but did not expect customers to redirect capital spending so heavily toward servers, storage and memory needed for AI infrastructure.

“What played out was worse than our expectations,” Krishna wrote.

“These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall,” he added.

IBM said customers shifted their quarterly technology budgets during the final weeks of June to secure supply-constrained infrastructure ahead of anticipated price increases.

The company also said rapidly evolving cybersecurity concerns across the technology industry distracted customers during the quarter.

IBM reported preliminary second-quarter revenue of $17.2 billion, an increase of 1% from a year earlier. The results sent the company’s shares down 25%.

Software revenue increased 5%, while consulting revenue was unchanged and infrastructure revenue declined 7%.

Diluted earnings per share fell 2% to $2.27, although adjusted operating earnings per share rose 5% to $2.93.

Krishna said the revenue shortfall was largely caused by weaker-than-expected performance in IBM’s Z mainframe business and related software products, particularly transaction-processing software.

He said IBM would continue investing heavily in artificial intelligence and quantum computing.

“While performance in the quarter was below our expectations, we have conviction in the strength of our portfolio and the strategic transformation of our business,” Krishna said.

IBM said it was still finalizing its quarterly financial statements and would release its complete second-quarter results July 22. (Source: IANS)