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IBM Shares Plunge Following 'Disappointing' Preliminary Second-Quarter Results

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IBM Shares Plunge Following 'Disappointing' Preliminary Second-Quarter Results

IBM (IBM) shares plummeted Tuesday after the company's preliminary second-quarter results fell short of Wall Street's expectations, with Chief Executive Arvind Krishna calling the performance "disappointing."

The computer and software company expects revenue to increase 1% to $17.2 billion in the June quarter, missing the FactSet-polled consensus of $17.86 billion. IBM projects operating earnings to increase 5% to $2.93 a share, also lagging the Street's $3.01 views.

The company's shares plunged 26% in afternoon trade.

Second-quarter infrastructure revenue is seen down 7%, while software revenue is projected to rise 5%.

The results were "disappointing" amid software and infrastructure "performance shortfall," Krishna said in a letter to investors Tuesday. IBM expected infrastructure revenue to drop low-single digits for the year, according to the letter.

"What played out was worse than our expectations, driven by a shortfall in our Z performance and the associated software stack, primarily in transaction processing," Krishna said.

In the last few weeks of last month, clients shifted their quarterly capital expenditure spending toward servers, storage, and memory purchases to secure "supply-constrained" infrastructure ahead of anticipated price hikes, affecting their buying patterns, according to Krishna.

"While we anticipated some supply chain-related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," Krishna wrote. "In addition, clients were distracted with rapidly evolving, industry-wide cybersecurity concerns in the quarter."

IBM failed to adapt and "move quickly enough" to tackle the situation, according to the CEO. "Numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall," Krishna said.

IBM is on course to deliver the first large-scale fault-tolerant quantum computer by 2029, according to Krishna.

The company is scheduled to report full second-quarter results July 22.

Price: $216.67, Change: $-73.56, Percent Change: -25.35%

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