IBM is having a rough quarter, and the numbers tell the story.
The tech giant reported $17.2 billion in revenue for the latest three months, with a gross profit of $9.9 billion and net earnings of $2.2 billion. On the surface, that sounds fine. But investors were less impressed with what they saw underneath.
Mainframe revenue plunged 42%. That is a huge drop for a product line that still brings in serious money for IBM. CEO Arvind Krishna told investors in a letter that the quarter "was worse than our expectations."
For decades, IBM's mainframe business has consistently provided steady profits. So why did sales crater?
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The answer has a lot to do with the AI boom. Companies that would normally buy new mainframe systems are instead spending their budgets on other hardware. The reason is simple: the cost of data center components - things like memory chips - has gone up sharply, by anywhere from 15% to 30%. When customers saw those price hikes, they decided to put their money into gear they needed right now, not into mainframes.
"When they were faced with that issue, then they decided to move budget to those areas where they were having that extreme price," Krishna said.
Other tech hardware makers like Dell, HP, and Apple have warned about similar cost pressures.
This shift reflects a broader industry trend where companies are prioritizing AI-capable hardware over traditional enterprise systems. The surge in demand for GPUs and high-bandwidth memory has squeezed budgets, forcing IT departments to make tough choices. While mainframes remain critical for legacy applications, the current cycle underscores the rapid pace of technological change.
The bottom line: Mainframes are not dead. IBM's software revenue dwarfs its mainframe hardware revenue by a factor of three to one, a point made by CFO Jim Kavanaugh during the quarterly earnings call. And Krishna insists customers are not abandoning the platform.
"We see no evidence of clients moving off the mainframe," he said. But they are delaying purchases, and that is enough to cause a painful quarter.
For more than five decades, the mainframe has been a fundamental pillar of IBM's revenue, consistently producing billions in yearly sales. However, the recent 42% plunge is unprecedented, highlighting how quickly the AI-driven demand for graphics processing units and high-bandwidth memory is reshaping enterprise IT budgets. IBM's own guidance now reflects a slower recovery, with full-year growth forecasts reduced.
IBM has lowered its full-year growth forecasts, meaning the weak quarter will drag on the rest of the year. The company expects customers to come back and buy mainframes eventually - some already have in the current quarter - but the timing is uncertain.
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