IBM shares plunged more than 20% in premarket trading on Tuesday, Jul. 14, after the company warned that second-quarter revenue of $17.2 billion will miss Wall Street estimates. IBM expects s
IBM shares plunged more than 20% in premarket trading on Tuesday, Jul. 14, after the company warned that second-quarter revenue of $17.2 billion will miss Wall Street estimates.
- IBM expects second-quarter revenue of $17.2 billion and adjusted earnings of $2.93 per share, both below analyst forecasts.
- The stock is on pace for its worst single-day loss in decades, deeper than the 23% drop of October 1987.
- CEO Arvind Krishna blamed a late shift in client spending toward servers, storage and memory chips.
The company said in a preliminary release that revenue for the quarter ended in June rose about 1% from a year earlier, far below the $17.86 billion analysts polled by FactSet had projected. Adjusted earnings are expected at $2.93 per share against a $3.01 consensus.
The details show an uneven quarter.
IBM launched its z17 mainframe this spring and had expected infrastructure revenue to decline only in low single digits this year as that program matured.
The shortfall in the Z line and its related software stack proved deeper than management planned, hitting transaction processing hardest.
Software revenue grew 5%, while infrastructure sales fell 7% and consulting stayed roughly flat. Chief Executive Arvind Krishnawrote in a letter to investors that clients redirected capital budgets toward servers, storage and memory in the final weeks of June, racing to secure supply-constrained hardware ahead of expected price increases.
He also pointed to industry-wide cybersecurity concerns that distracted customers during the quarter.
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Strategist Mike Zaccardinoted that IBM is heading for its worst trading day in records going back to 1961, surpassing the 23% single-session loss of October 1987. The premarket quote near $225 erased roughly $65 from Monday's close of $290.23.
The damage spread quickly.
Shares of ServiceNow, Salesforce, Accenture and Cognizant all fell in premarket trading as investors reassessed demand across software and consulting.
Some analysts read the episode as fresh evidence that heavy corporate spending on AI computing hardware is crowding out budgets for software and services.
Krishna appeared to concede the point, admitting that "these conditions require our teams to execute perfectly, and this quarter we faltered."
The warning reverses a strong stretch for the 115-year-old company, whose first-quarter revenue climbed about 9% to $15.9 billion on an 11.3% jump in software sales, and whose stock had gained 21% over three months through Monday's close. Tuesday's rout erased those gains before the opening bell.
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