Massive AI capex shift sends IBM revenues tumbling
CEO says Big blue’s customers are buying more memory chips and less software and mainframes.
• less than 3 min read
One CFO’s capex shift is another CFO’s sales shortfall.
It seems IBM is a victim of companies’ shifting capex budgets amid the AI arms race.
In what the Wall Street Journal described as a “rare profit warning,” IBM CEO Arvind Krishna told investors in a letter on Tuesday that the company performed worse than expected in its second quarter.
Preliminary Q2 results show IBM recorded revenue of $17.2 billion, worse than the $17.9 billion analysts had projected, according to Bloomberg.
In his note, Krishna specifically called out a “performance shortfall” in its infrastructure and software divisions. Infrastructure revenue was down 7% YoY for the quarter, while software revenue increased 5%, after climbing 11% in Q1. Consulting revenue was flat.
June swoon. Infrastructure started the year strong, leading IBM to expect it “to decline low-single digits for the year, beginning this quarter,” Krishna wrote.
However, “in the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases,” Krishna wrote. “This dynamic impacted client buying patterns. While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.”
Shares fell more than 25% following the announcement on Tuesday, according to the Wall Street Journal, amounting to “the largest one-day drop on record” for IBM.
The AI data center development boom has caused “severe shortages of semiconductors, particularly memory chips,” according to Bloomberg. This means companies have less money to spend on IBM’s mainframes and software. Tech giants including Alphabet and Amazon signaled early this year they planned to spend hundreds of billions of dollars on AI infrastructure, CFO Brew previously reported.
Citi analysts wrote that IBM’s “disappointing results stand to perpetuate “‘AI-Loser’ fears,” according to Seeking Alpha.
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About the author
Alex Zank
Alex Zank is a reporter with CFO Brew who covers risk management and regulatory compliance topics. Prior to CFO Brew, he covered the property/casualty insurance industry.
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