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IBM says AI spending won’t kill the mainframe
IBM’s mainframe revenue plunged 42% as customers redirected budgets to costly AI infrastructure, but CEO Arvind Krishna calls the decline temporary.
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IBM reported $17.2 billion in revenue, $9.9 billion in gross profit, nearly 58% margins, and $2.2 billion in net earnings for the quarter. Those figures still fell well short of Wall Street’s expectations, prompting the 115-year-old company to cut its full-year growth forecasts.
The warning was unusually public. CEO Arvind Krishna and IBM’s board previewed the results last week in a letter to investors, saying the quarter was “worse than our expectations” and flagging weak revenue in the company’s critical infrastructure business. IBM’s stock subsequently plunged 25%, its biggest single-day decline ever.
Mainframe revenue falls 42%
The central problem was IBM’s cash-generating mainframe business, which declined 42% during the quarter. The impact extends beyond hardware: CFO Jim Kavanaugh said IBM earns $3 in software revenue for every $1 of mainframe hardware it sells.
Krishna and Kavanaugh described the decline as temporary. They said “tens” of customers that had been expected to purchase new mainframes postponed those deals. Mainframe systems can cost hundreds of thousands to millions of dollars, while maintenance agreements and software can generate many millions more over time.
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AI spending reshuffles enterprise budgets
Krishna attributed the delays to the same AI infrastructure boom that had helped IBM’s stock perform well during his six years leading the company. Customers facing 15% to 30% price increases for data-center equipment and PCs redirected their budgets to those categories instead of buying mainframes.
“When they were faced with that issue, then they decided to move budget to those areas where they were having that extreme price.”
Enterprise hardware companies including Dell and HP have warned that higher component costs, including for memory, driven by AI infrastructure construction are forcing them to raise prices. Apple has issued a similar warning.
Krishna said the delayed customers will eventually purchase new mainframes and their associated software contracts, adding that some have already returned this quarter.
“We see no evidence of clients moving off the mainframe.”
The industry has predicted the mainframe’s demise for decades. IBM now has to show that AI-driven spending delays are a temporary disruption rather than the start of a longer decline.
Enterprise Editor
Marcus follows the money. He covers enterprise software, cloud architecture, and the tectonic shifts in Big Tech strategy. He translates dense earnings calls and complex M&A activity into actionable insights about where the industry is actually heading. If a tech giant makes a silent pivot, Marcus is usually the first to notice.
via TechCrunch
