IBM 2026 Q2

Full-year revenue growth guidance was cut to 4%-5% from a prior 5%-plus outlook after Q2 growth came in at just 1%, driven by large CapEx deals slipping past quarter-end.

“revenue guide now 4% to 5%. On the low end, it's about a one point plus takedown.”— James Kavanaugh, Senior Vice President and Chief Financial Officer

Management believes the Q2 shortfall reflects deferred rather than destroyed demand, noting about one-third of the slipped large deals already closed within the first three weeks of Q3.

“the fact that one-third have already closed in the first three weeks gives us an indication, not yet full evidence, but a good indication that this was deferral and not destruction”— Arvind Krishna, Chairman, President and Chief Executive Officer

Infrastructure full-year growth guidance was raised to low single digits from a prior guide of down low-to-mid single digits, reflecting stronger-than-expected Distributed Infrastructure demand and continued mainframe program-to-program strength.

“That infrastructure guide 90 days ago, we said was going to be down low to mid-single digit\u2026guide to guide, we're up about two points there.”— James Kavanaugh, Senior Vice President and Chief Financial Officer

Software full-year growth guidance was lowered to a 6%-8% range from prior expectations after the Q2 shortfall, with the low end assuming recent CapEx-driven buying dynamics persist through the second half.

“we are revising our software growth expectation to a range of 6% to 8% for the full year”— Arvind Krishna, Chairman, President and Chief Executive Officer

Consulting revenue growth guidance was raised to low-to-mid single digits for the year, an acceleration from the 1% growth posted in Q2, supported by strong Gen AI backlog momentum.

“the quality of our backlog and momentum in Gen AI continue to support an acceleration in revenue growth to low to mid-single digits for the year”— Arvind Krishna, Chairman, President and Chief Executive Officer

Mainframe (Z) revenue declined 42% in Q2, coming in below management's expectations even after accounting for typical post-launch seasonality.

“Mainframe overall, yes, down 42%\u2026it was below our expectations.”— James Kavanaugh, Senior Vice President and Chief Financial Officer

IBM has held its own hardware and software prices flat through July, declining to match the aggressive price increases some competitors are pushing into the market amid supply constraints.

“we have actually held our price so far in the month of July. We have not taken increases.”— Arvind Krishna, Chairman, President and Chief Executive Officer

Distributed Infrastructure delivered its best quarter of revenue growth on record, growing 37%, marking a new high for this business line.

“Distributed Infrastructure just delivered its best quarter of revenue growth on record, growing 37%.”— Arvind Krishna, Chairman, President and Chief Executive Officer

Distributed Infrastructure backlog reached approximately $500 million, the highest level on record, supporting continued momentum into the second half.

“we exited the quarter with approximately $500 million of backlog, our highest on record”— James Kavanaugh, Senior Vice President and Chief Financial Officer

Consulting signings grew 6%, marking the second consecutive quarter of signings growth after a period of weaker bookings.

“signings grew 6%, marking our second consecutive quarter of growth”— James Kavanaugh, Senior Vice President and Chief Financial Officer

Transaction processing software revenue declined 9% as clients redirected CapEx toward hardware purchases ahead of anticipated price increases, deferring associated enterprise license agreement software deals.

“transaction processing revenue declining 9%”— James Kavanaugh, Senior Vice President and Chief Financial Officer

z17 mainframe program-to-program performance remains near 130%, the best refresh cycle in reported history, despite the quarter's overall Z revenue shortfall.

“z17 is having the best refresh cycle in reported history.”— Arvind Krishna, Chairman, President and Chief Executive Officer

IBM is accelerating changes to its go-to-market model to expand coverage beyond the Fortune 1000 to thousands of additional clients, targeting new wallet-share opportunities not previously pursued.

“The goal is to expand coverage across thousands of additional clients where our portfolio is highly relevant and where we see significant wallet share opportunities.”— Arvind Krishna, Chairman, President and Chief Executive Officer

Red Hat revenue growth accelerated 1 point sequentially to 11%, driven by improvement in the subscription business and stable consumption-based services growth.

“Red Hat growth accelerated 1 point sequentially to 11%”— James Kavanaugh, Senior Vice President and Chief Financial Officer

HashiCorp posted another record bookings quarter and accelerated revenue growth through the first half of the year.

“HashiCorp had another record bookings quarter and accelerated revenue growth through the first half of the year.”— James Kavanaugh, Senior Vice President and Chief Financial Officer

Confluent, newly acquired, is off to a strong start and tracking to expectations in its first full quarter post-close.

“Confluent is off to a strong start and on track with our expectations after its first full quarter post close.”— James Kavanaugh, Senior Vice President and Chief Financial Officer

IBM launched Lightwell, a new open-source security remediation offering addressing a multibillion-dollar TAM, rolling out over 7,500 remediated package versions within its first two weeks and signing major banks as early adopters.

“In the first 2 weeks of availability, we have already made more than 7,500 package versions available.”— Arvind Krishna, Chairman, President and Chief Executive Officer

Organic data software revenue softened this quarter as clients deprioritized data purchases amid the CapEx shift, but management expects data to recover and contribute positively over the next 12 months.

“I fully expect that we will do well in the data portfolio.”— Arvind Krishna, Chairman, President and Chief Executive Officer

Operating gross profit margin declined 70 basis points in the quarter, driven primarily by the revenue shortfall and unfavorable mix from the CapEx-related software slip.

“Operating gross profit margins were down 70 basis points, largely driven by our revenue shortfall and mix.”— James Kavanaugh, Senior Vice President and Chief Financial Officer

Full-year operating pretax margin expansion guidance was raised to 100 basis points as accelerated productivity gains are now expected to more than offset revenue-related headwinds from the Q2 shortfall.

“we now expect to deliver 100 basis points of operating pretax margin expansion with productivity more than offsetting the revenue-related headwinds”— James Kavanaugh, Senior Vice President and Chief Financial Officer

Segment profitability diverged this quarter: Software (+110bps) and Consulting (+160bps) margins expanded on productivity actions, while Infrastructure margin fell 150bps on an unfavorable Z mix.

Per James Kavanaugh, Senior Vice President and Chief Financial Officer

Productivity actions have run ahead of plan and exceeded expectations, giving IBM flexibility to absorb Confluent-related dilution while still investing for growth.

“the pace of our productivity actions have exceeded our expectations”— James Kavanaugh, Senior Vice President and Chief Financial Officer

IBM is increasing investment in specialized technical and client-facing talent, including newly created forward deployed engineer roles, to support enterprise-scale AI adoption.

“we are also investing in more specialized technical and client-facing talent, including forward deployed engineers”— Arvind Krishna, Chairman, President and Chief Executive Officer

IBM said it is gaining market share in storage through differentiated AI-enabled offerings across flash, fusion, and tape, a shift management highlighted as a growth vector.

“We are gaining share in storage through differentiated offerings across flash, fusion and tape”— Arvind Krishna, Chairman, President and Chief Executive Officer

Some competitors have been aggressively raising infrastructure prices while IBM has held back, though management expects this restraint cannot last more than a few weeks before IBM also adjusts pricing.

“I think that our teams are a bit more reluctant and less aggressive than others in portraying some of those increases in hardware that are coming into the market.”— Arvind Krishna, Chairman, President and Chief Executive Officer

IBM announced a letter of intent with the U.S. Department of Commerce to build Anderon, described as the world's first pure-play quantum foundry, backed by $1 billion in government incentives plus a $1 billion IBM cash contribution.

“we announced a letter of intent to build Anderon, the world's first pure-play quantum foundry, supported by $1 billion in chips incentives provided by the Department of Commerce and $1 billion cash contribution by IBM”— Arvind Krishna, Chairman, President and Chief Executive Officer

IBM disclosed a new commitment to invest more than $10 billion in Quantum over the next five years spanning R&D, CapEx, manufacturing scale-up, M&A, and ecosystem expansion, supporting a 2029 fault-tolerant quantum computer target.

“we disclosed plans to invest more than $10 billion in Quantum over the next 5 years, spanning R&D, CapEx, manufacturing scale-up, M&A and ecosystem expansion”— Arvind Krishna, Chairman, President and Chief Executive Officer

IBM proactively increased inventory buy-aheads (up $600 million year-to-year) to secure supply chain ahead of anticipated infrastructure price increases, creating a first-half cash flow headwind expected to reverse into a tailwind in the second half.

“Our inventory exiting the first half is up $600 million year-to-year.”— James Kavanaugh, Senior Vice President and Chief Financial Officer

In the final weeks of June, enterprise clients shifted spending priorities toward securing supply-constrained servers, storage, and memory ahead of expected price increases, causing large software deals to slip and reshaping near-term budget allocation.

“Many clients redirected spending towards servers, storage and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.”— James Kavanaugh, Senior Vice President and Chief Financial Officer

Currency is now expected to be a 1.5 point headwind to Q3 revenue growth due to a strengthening dollar, a larger drag than previously assumed.

“Given the strengthening of the dollar, we now expect currency to be a 1.5 point headwind to revenue growth in the quarter.”— James Kavanaugh, Senior Vice President and Chief Financial Officer