IBM is warning investors that its full-year revenue growth will be lower than it had previously forecast.

When the company published its second-quarter earnings Wednesday, it confirmed the disappointing results that it previewed last week in a rare move that erased about $67 billion in stock market value.

Big Blue's infrastructure revenue of $3.8 billion was down 7% from a year earlier. That unit was pulled down by lower-than-expected sales of data center mainframes, which fell 42%.

IBM now expects full-year revenue growth to be in a range between 4% to 5%. Earlier this year, the company projected full-year growth of more than 5%.

Chief Executive Arvind Krishna said the company is in the "early innings of a structural shift for business," according to a statement.

Even so, he said he believes IBM is well-positioned across its software, infrastructure and consulting businesses to help customers capture value from artificial intelligence.

"We are taking action to accelerate our revenue growth and profitability, driving productivity across the company with AI and automation, and heavily investing in commercializing innovation at speed and scale," Krishna said.

IBM earned $2.2 billion on revenue of $17.2 billion in the second quarter. It still expects full-year free cash flow to increase by about $1 billion from last year.

In the second quarter, IBM failed to close "tens of deals," which led to the disappointing results, James Kavanaugh, IBM's chief financial officer, said in an interview with The Wall Street Journal. Since then, the company has closed roughly a third of those deals, he added.

IBM is scheduled to hold a call with investors and analysts at 5 p.m. Eastern time, and Krishna is expected to face questions from Wall Street about the company's direction and leadership.

IBM took the rare step of preannouncing its results on July 14, in an investor letter in which Krishna wrote that the company had "faltered." The disclosure sent IBM's shares down 25% -- the worst day in the century-old company's history. The stock is down a further 5% since then.

Krishna tied the miss to IBM customers redirecting late-quarter budgets toward servers, storage and memory to lock in AI-related hardware before prices rose. He also attributed a pause on some deals as clients reassessed cybersecurity spending.

IBM doesn't expect supply chain constraints in the AI infrastructure market to improve in the near term.

"Everyone in the industry is saying this will extend for a period of time," Kavanaugh said.

The headwinds facing IBM are a different threat from the software-replacement fears that have weighed on Salesforce, Workday and Snowflake. IBM's warning suggested AI infrastructure spending is now displacing hardware budgets, too -- squeezing a company whose customers install traditional systems in their own data centers and can defer big-ticket upgrades such as mainframes.

IBM's board of directors has debated how to explain its recent results to investors. Ultimately, they agreed to disclose the results in a bid to gain credibility with investors for transparency. The Journal reported that as of last week, the firm hadn't decided whether it could share forward-looking guidance with investors.

The episode has put Krishna's leadership under scrutiny and made the company, which employs 260,000 people, the subject of breakup and activist speculation. The board is expected to meet again in late July, and board members are facing pressure from an impatient Wall Street that is unlikely to tolerate several more quarters of underperformance.

Much of IBM's revenue is tied to its data center business, where it sells servers known as mainframes to enterprise customers such as financial-services firms and retailers. That means IBM hasn't benefited from the boom in spending on AI infrastructure that has boosted some of its peers, including Nvidia, Amazon Web Services and Advanced Micro Devices.

Kavanaugh said that despite the rough quarter, IBM's mainframe business should grow in the second half of the year.

"Mainframe has always been the most secure, resilient, scalable system in the world," he said. "That's why it runs over 70% of the world's transaction volumes in terms of value."

Write to Anissa Gardizy at anissa.gardizy@wsj.com

(END) Dow Jones Newswires

July 22, 2026 16:11 ET (20:11 GMT)

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