After shocking quarter, IBM insists that AI isn’t killing the mainframe
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- IBM reported quarterly earnings of $17.2 billion in revenue, $9.9 billion in gross profit, and $2.2 billion in net earnings, but results fell well short of Wall Street expectations.
- IBM's stock dropped 25% — its largest single-day decline ever — after CEO Arvind Krishna published a pre-emptive "letter to investors" warning that earnings would be "worse than our expectations."
- IBM's mainframe business fell 42% during the quarter, dragging down the company's critical infrastructure segment and forcing IBM to lower its full-year growth forecasts.
- CFO Jim Kavanaugh explained on the earnings call that IBM earns $3 in software revenue for every $1 of mainframe hardware sold, making the mainframe decline a cascading problem.
- Krishna attributed the shortfall to "tens" of customers reallocating budget to other hardware after facing 15%–30% price increases on data center gear and PCs, a trend also flagged by Dell, HP, and Apple.
- Krishna insisted there is "no evidence of clients moving off the mainframe," noting some of those delayed customers have already purchased new mainframes this quarter.
Why it matters: IBM's 25% stock wipeout — its worst single-day decline ever — hinges on whether Krishna's "temporary blip" framing holds; the mainframe drag cascades because every $1 of hardware lost pulls $3 in software revenue with it, and IBM has already trimmed its full-year growth forecast to reflect the impact.
