Dive Brief:
- IBM infrastructure revenue dipped 7% in Q2, driven partly by shifts in customer spending, according to preliminary results shared by CEO Arvind Krishna in a Tuesday letter to investors. While the technology company anticipated a drop in infrastructure revenue, the decline was worse than expected, Krishna said.
- The revenue decline was due in part to shortfalls in its IBM Z segment, given strong performance in Q2 of last year as the company unveiled its z17 series. Krishna also attributed the decline to a shift in client capital expenditures spend to servers, storage and memory as enterprises seek to secure compute power amid supply constraints.
- “While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization,” Krishna said. IBM’s stock price dropped more than 25% Tuesday following the earnings warning.
Dive Insight:
The focus on securing compute comes as companies focus more sharply on AI workloads while concerns around scarcity run rampant. In the process, some are deferring other modernization efforts to align with strategic priorities.
“This is a general market trend we’ve been seeing,” Ashish Nadkarni, group VP, GM and global domain lead of enterprise infrastructure at IDC, told CIO Dive. “Everybody wants to talk about economics of compute, whether it’s quantum computing, whether it’s mainframes, whether it’s your run-of-the-mill laptops. Everybody wants to know, ‘How much can I get out of it without paying through the roof’?”
Enterprises are being scrutinized for the economic viability of their available compute, Nadkarni said. If CIOs are able to stretch the meaningful life of compute, “people are wanting to do that,” especially as tech leaders right-size their infrastructure and shift budgets to net-new, AI-centric workloads, he added.
“This is a strategic reallocation of budgets to ensure that all the emerging initiatives, or what the company wants to bank on in the future, are getting the new dollars,” he said. “Especially when you have existing infrastructure and you can make do with that existing infrastructure.”
Still, Nadkarni classified the market reaction to Krishna’s warning as being somewhat overblown. IBM is not an outlier as enterprises follow the market trend of focusing on compute economics, he said.
“At some point, people are going to need more infrastructure,” Nadkarni said. “You need more data, you need to store more data, you need more compute at some point. This is a cyclical thing.”
In Q1, IBM’s infrastructure revenue was up 15% and the company saw broad revenue growth across its segments.
