IBM Shares Dip On Second-Quarter Earnings Warning

IBM shares plunged more than 22% in premarket trading on Tuesday after the technology giant warned that its preliminary second-quarter results fell short of expectations on weakness in the software and infrastructure business.Infrastructure dragIn a letter to investors, the company's chairman and CEO Arvind Krishna attributed the disappointing quarter to weaker-than-expected performance in IBM’s mainframe-related infrastructure business and associated software, particularly transaction processing.Infrastructure revenue declined 7%, while software revenue grew 5% and consulting revenue was flat, or up 1% at constant currency. On a reported basis, diluted earnings per share fell 2% to $2.27. Shares dipped 22.43% to $290.23 as of xx.Krishna said enterprise customers shifted capital spending toward servers, storage, and memory purchases in late June to secure supply-constrained hardware ahead of anticipated price increases, disrupting IBM’s expected sales cycle.“While we anticipated some supply chain-related impact, we did not anticipate the magnitude of the capex reprioritization,” he wrote.He also acknowledged execution issues, saying IBM failed to close several large deals on schedule.“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,” Krishna said.Growth areasDespite the shortfall, IBM highlighted strength across several parts of its business. Red Hat revenue growth accelerated to 11%, while recently acquired companies HashiCorp and Confluent delivered strong performances.IBM’s Distributed Infrastructure business posted a record 37% increase in revenue, supported by strong demand for Power systems and storage, ending the quarter with an order backlog of about $500 million.The company also said its z17 mainframe launch remains significantly ahead of its predecessor, with performance tracking at nearly 130% of the previous product cycle.AI and quantum investmentsIBM reaffirmed its long-term growth strategy, pointing to the launch of Lightwell, a $5 billion initiative aimed at helping enterprises address open-source software vulnerabilities using AI. Early adopters include major financial institutions such as Bank of America, Goldman Sachs, JPMorgan Chase, Mastercard, and Visa.The company also reaffirmed plans to invest more than $10 billion in quantum computing over the next five years and said it remains on track to deliver the world's first large-scale fault-tolerant quantum computer by 2029.What to watch forIBM is expected to release its full second-quarter financial results and updated full-year outlook on July 22.