AATMAAATMA
Menu
Back to News
Technology

IBM Mainframe Revenue Plunges 42%, CEO Insists AI Is Not the Culprit

IBM reported a shocking quarter with mainframe revenue down 42%, prompting an unprecedented pre-earnings warning that tanked the stock 25%. CEO Arvind Krishna insists the drop is temporary.

IBM reported a disappointing quarter with mainframe revenue plunging 42%, prompting the company to lower full-year growth forecasts and issue an unprecedented pre-earnings warning that sent the stock down 25%. CEO Arvind Krishna attributed the drop to customers diverting budgets toward data center gear facing 15-30% cost increases from the AI boom, rather than a permanent shift away from mainframes. IBM earns $3 in software revenue for every $1 of mainframe hardware sold, making the hardware decline particularly consequential.

A Quarter to Forget

IBM officially reported earnings on Wednesday, and the results were as bad as the market feared. While the 115-year-old company still generated 17.2billioninrevenue∗∗,∗∗17.2 billion in revenue**, **9.9 billion in gross profit, nearly 58% margins, and $2.2 billion in net earnings for the quarter, the numbers fell well short of Wall Street expectations.

The miss was severe enough that CEO Arvind Krishna and the board took the unprecedented step of warning investors ahead of time. Krishna published preliminary results last week stating that earnings "was worse than our expectations." The stock instantly tanked 25%, erasing gains that had accumulated over his six years of leadership.

The Mainframe Collapse

The culprit was IBM's cash-cow mainframe business, which was down 42%. The damage cascades: as CFO Jim Kavanaugh explained, IBM earns 3insoftwarerevenueforevery3 in software revenue for every 1 of mainframe hardware it sells. On Wednesday, IBM also lowered its full-year growth forecasts.

The Official Explanation

Krishna and Kavanaugh spent the earnings call insisting this was a temporary blip. What happened, they said, was that "tens" of customers due to buy new mainframes during the quarter opted not to. These are not small purchases: mainframes cost hundreds of thousands to millions of dollars, and with maintenance and software contracts, generate many millions more.

The reason? Astronomical cost increases of 15% to 30% for data center gear and PCs, driven by the AI build-out boom. "When they were faced with that issue, then they decided to move budget to those areas where they were having that extreme price," Krishna said. Enterprise hardware makers like Dell and HP have warned of similar component cost pressures.

The Defense of the Mainframe

Krishna promised that those customers will still buy their new mainframes eventually, along with their software contracts. Some have already done so this quarter. "We see no evidence of clients moving off the mainframe," he said.

Whether that holds is the open question. The tech industry has predicted the death of the mainframe for decades. This quarter suggests that even if AI does not kill it directly, the resource demands of the AI boom may be reshuffling enterprise budgets in ways that leave less room for IBM's legacy hardware.