IBM suffered its worst single-day stock market decline in history on Tuesday after releasing preliminary second-quarter results that disappointed investors, sending shares down 25%. The selloff eclipsed the company's previous worst trading day during the 1987 stock market crash, when the stock fell 23.7%, making it the steepest one-day decline since records began in 1968.
The sharp reaction came after IBM reported weaker-than-expected software and infrastructure performance. Revenue rose just 1% year-on-year to $17.2 billion, while infrastructure revenue fell 7%.
Soon after the results, Chairman and CEO Arvind Krishna issued a candid letter to investors explaining what went wrong, why management missed its own expectations and why he believes IBM's long-term strategy remains intact.
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Here are the five biggest takeaways.
IBM Admitted It Failed To Execute
Krishna took unusual ownership of the disappointing quarter, saying the company failed to adapt quickly as customers shifted spending priorities. "These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall."
According to Krishna, customer behaviour changed dramatically during the final weeks of June. Instead of continuing with planned software and mainframe purchases, many enterprise clients redirected their capital expenditure toward servers, storage and memory hardware to secure supplies before expected price increases.
IBM had anticipated some disruption from supply-chain constraints, but the magnitude of this shift caught management off guard. Krishna also said rapidly evolving cybersecurity concerns across the industry distracted customers, delaying procurement decisions and slowing the closure of several large transactions.
The Mainframe Cycle Didn't Unfold As Expected
The biggest disappointment came from IBM's infrastructure business. Revenue from the segment declined 7%, significantly weaker than management had anticipated.
IBM had entered the quarter expecting some moderation after the exceptionally successful launch of its latest z17 mainframe. Krishna noted that the z17 rollout had been "the strongest start to a mainframe program in our history," leading the company to forecast only a modest decline in infrastructure revenue for the year.
Instead, customers delayed purchases of both the hardware and the associated software stack — particularly transaction processing software that typically accompanies mainframe deployments.
He noted that the z17 program continues to outperform its predecessor, with adoption running at nearly 130% of the z16 launch, while customers representing 85% of installed processing capacity have either maintained or increased workloads.
IBM Is Doubling Down On AI — And Already Has Major Customers
IBM is accelerating investments in artificial intelligence, and Krishna highlighted the launch of Lightwell, a new $5 billion AI initiative that combines IBM and Red Hat technologies to help enterprises identify and remediate vulnerabilities in open-source software.
The company has committed more than 20,000 engineers to the initiative.
Several of the world's largest financial institutions—including Bank of America, BNY, Citi, Goldman Sachs, JPMorgan Chase, Mastercard, Morgan Stanley, Royal Bank of Canada, State Street, Visa and Wells Fargo — have already signed on as early adopters.
Quantum Computing Remains Central To IBM's Long-term Strategy
Krishna also used the letter to reiterate IBM's ambitions beyond AI."Quantum computing is no longer decades away — it is upon us." The company recently announced plans to invest more than $10 billion in quantum computing over the next five years, covering research, manufacturing, acquisitions and ecosystem expansion.
IBM is also partnering with the U.S. Department of Commerce to build what it says will be the world's first dedicated quantum wafer foundry, backed by $1 billion in CHIPS Act incentives alongside a matching $1 billion investment from IBM.
Krishna also reiterated that IBM remains on track to deliver the industry's first large-scale fault-tolerant quantum computer by 2029.
IBM Wants Investors To Focus On What Is Still Growing
Despite the disappointing headline numbers, Krishna devoted much of the letter to highlighting businesses that continued to perform well.
Software revenue increased 5%, while Red Hat accelerated to 11% growth, reflecting continued demand for hybrid cloud and enterprise Linux solutions. Krishna also said recent acquisitions — including HashiCorp and Confluent — delivered strong performances during the quarter.
Within infrastructure, IBM's distributed infrastructure business reached what Krishna described as its best reported performance ever, growing 37% on strong demand for Power systems and storage products.
The company also exited the quarter with a backlog of roughly $500 million in distributed infrastructure orders. Consulting signings continued to grow as well, supported by increasing demand for generative AI projects.
The company plans to outline additional measures to improve execution when it reports full second-quarter earnings on July 22, when management will also update investors on its outlook for the rest of the year.
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