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After shocking quarter, IBM insists that AI isn’t killing the mainframe
IBM reported disappointing quarterly earnings, with results falling well short of Wall Street's expectations and prompting the company's biggest ever single-day share price drop of 25%. Chief executive Arvind Krishna had already pre-warned investors of the poor showing, blaming a sharp slump in mainframe hardware sales, and the firm has now also cut its full-year growth forecasts, meaning the weak quarter will weigh on results for the rest of the year.
The mainframe business, historically a reliable cash generator for the 115-year-old company, fell 42% in the quarter, which matters disproportionately because IBM earns three dollars in software revenue for every dollar of mainframe hardware sold. Krishna and finance chief Jim Kavanaugh said "tens" of customers due to buy new mainframes instead diverted spending to other hardware after data centre and PC prices rose by 15% to 30%, a cost surge driven by the broader AI infrastructure boom. Despite this, the pair insisted the shift was temporary, said some deferred purchases had already resumed this quarter, and maintained there was "no evidence" of clients abandoning mainframes altogether, even as overall revenue ($17.2 billion) and profit ($2.2 billion) still comfortably exceeded costs.
In short
- IBM shares fell 25% after a big earnings miss, its worst-ever daily drop.
- Mainframe sales dropped 42% as AI-driven hardware costs diverted client budgets.
- IBM insists the slump is temporary and mainframe demand will return.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
IBM's leadership argues the mainframe decline reflects temporary cost pressures from the broader AI infrastructure boom, not structural displacement. With deferred purchases already resuming and no evidence of customers abandoning mainframes, they contend the downturn is cyclical rather than existential. Enterprise workloads continue to depend on mainframes' proven reliability and capability, suggesting this quarter represents a timing issue rather than a terminal loss of relevance.
The case against
A 42% quarterly collapse coinciding with the AI infrastructure boom suggests potential structural disruption rather than temporary economic pressure. Critics note that if mainframes were truly indispensable to enterprise operations, customers would absorb temporary cost increases rather than so readily divert spending to alternative hardware. The market's sceptical response—reflected in the 25% share-price drop—reflects genuine concern that AI and cloud alternatives represent a competitive threat far more significant than IBM acknowledges.
Explained simply
IBM is one of the world's largest technology companies, founded over a century ago. The company has just reported disappointing quarterly financial results that fell well short of investor expectations, prompting its largest single-day share price drop on record.
At the heart of the weak results is a 42% collapse in sales of mainframes, which are large computers that perform essential computing tasks for major organisations worldwide. Mainframes have historically been IBM's most valuable business because whilst hardware sales generate significant revenue, they create additional long-term income through software licences and support services, often worth three times the hardware sale price.
The decline is significant because surging costs for AI infrastructure and data centre equipment have prompted some customers to postpone or redirect their planned mainframe purchases. This matters to investors because IBM's strong overall profits mask a potentially troubling trend in one of its most reliable business segments.
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