IBM reported preliminary second-quarter 2026 revenue of $17.2 billion, up 1% year over year, as stronger Red Hat growth and distributed infrastructure sales failed to offset weaker-than-expected performance in the IBM Z mainframe business and associated software. Software revenue increased 5%, Consulting revenue remained flat, and Infrastructure revenue declined 7%. GAAP diluted earnings per share fell 2% to $2.27, while operating EPS increased 5% to $2.93.
IBM Chairman and CEO Arvind Krishna said the company underestimated the magnitude of changes in customer capital spending during the final weeks of June. Clients shifted spending toward servers, storage, and memory products to secure supply-constrained infrastructure ahead of anticipated price increases, affecting buying patterns for IBM Z systems and Transaction Processing software. Krishna also cited cybersecurity concerns that distracted clients and delayed purchasing decisions. IBM acknowledged that its own execution contributed to the shortfall, with several large transactions failing to close within expected timelines.
Despite the quarterly weakness, IBM reported stronger performance across several strategic businesses. Red Hat revenue growth accelerated to 11%, while recently acquired HashiCorp and Confluent contributed to Software growth. Distributed Infrastructure revenue increased 37%, driven by Power and Storage demand, and exited the quarter with approximately $500 million in backlog. The z17 mainframe program remains at nearly 130% of the comparable z16 program trajectory. IBM also highlighted its $5 billion Lightwell software security initiative and plans to invest more than $10 billion in quantum computing over five years.
• Revenue: $17.2 billion, up 1% year over year
• Software revenue: Up 5%
• Red Hat revenue: Up 11%
• Consulting revenue: Flat, up 1% at constant currency
• Infrastructure revenue: Down 7%
• Distributed Infrastructure revenue: Up 37%, with approximately $500 million in backlog
• GAAP gross margin: 57.7%, down 100 basis points
• Operating gross margin: 59.4%, down 70 basis points
• GAAP EPS: $2.27, down 2%
• Operating EPS: $2.93, up 5%
• Year-to-date operating cash flow: $7.8 billion
• Year-to-date free cash flow: $4.8 billion
• z17 program performance: Nearly 130% of the comparable z16 program trajectory
• Lightwell investment commitment: $5 billion
• Planned quantum investment: More than $10 billion over five years
“These are not excuses, but they are realities. Our job is to help our clients through uncertainty, to find paths forward to grow their businesses no matter what is happening in the external environment,” said Arvind Krishna, Chairman, President and CEO of IBM.
🌐 Analysis: IBM’s preliminary results expose the sensitivity of its integrated hardware-software model to shifts in enterprise capital spending, particularly because weaker IBM Z shipments can affect associated Transaction Processing software revenue. At the same time, 11% Red Hat growth, 37% Distributed Infrastructure growth, and IBM’s continued investments in AI software security and quantum computing illustrate the company’s strategy to diversify growth beyond traditional infrastructure cycles.
