IBM blames AI-driven budget shifts for 42% drop in mainframe revenue

IBM reported a 42% year-over-year decline in mainframe revenue for the quarter, attributing the drop to customers delaying purchases due to high data center costs driven by AI infrastructure demand. CEO Arvind Krishna stated that "tens" of customers who were expected to buy new mainframes opted instead to allocate budgets to AI-related hardware, which faced price increases of 15% to 30%.

The company’s infrastructure segment, which includes mainframes, underperformed expectations, contributing to a 25% single-day stock decline following preliminary warnings. IBM CFO Jim Kavanaugh noted that the company earns $3 in software revenue for every $1 of mainframe hardware sold, linking the mainframe slowdown to broader financial impacts.

Krishna emphasized that IBM sees "no evidence of clients moving off the mainframe," suggesting the decline is temporary and tied to budget reallocation rather than long-term abandonment. He added that some customers have already resumed mainframe purchases in the current quarter.

IBM also lowered its full-year growth forecasts, indicating the mainframe slowdown is expected to extend beyond the quarter. The company’s overall revenue reached $17.2 billion, with $9.9 billion in gross profit and nearly 58% margins, but results fell short of Wall Street expectations.