IBM shares plunge 25% after CEO says company moved too slowly
Arvind Krishna told investors IBM faltered in the quarter as large deals slipped, while analysts pointed to AI-driven shifts in IT spending.
By Daniel Okafor · Business Editor
3 min read
IBM shares dropped 25% Tuesday after Chief Executive Arvind Krishna told investors the company had moved too slowly as key deals failed to close on schedule, Fortune reported. The fall followed a surprise earnings miss and marked the steepest one-day decline in IBM’s 115-year history, according to Fortune.
In a letter to investors, Krishna said market conditions demanded flawless execution from IBM and that the company fell short. “We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected,” he wrote.
Krishna pointed to weakness in IBM’s software and infrastructure operations, saying customer activity changed late in the quarter. He said several major transactions shifted into later periods rather than closing when IBM had expected.
Analysts told Fortune the miss reflected both IBM-specific execution problems and a broader change in how large companies are spending on technology. Holger Mueller, vice president and principal analyst at Constellation Research, said enterprises are steering capital toward “other platforms,” causing delays in mainframe upgrades and purchases that have traditionally been central to IBM’s business.
Mueller told Fortune that such delays are unusual because mainframes are critical infrastructure, but said they show the pull of artificial intelligence spending. He said the effect on IBM can spread beyond hardware because mainframe purchases often bring related software revenue.
“The impact on IBM is double,” Mueller said. “On one side, it hits hardware and infrastructure, but it also affects software, as mainframe sales typically trigger direct software revenue.”
Shay Boloor, chief market strategist at Futurum, told Fortune that customers are changing priorities while IBM is also dealing with execution issues. He said companies have shifted spending toward servers, storage and memory before expected price increases.
“Companies are prioritizing scarce hardware and delaying projects they believe can wait,” Boloor said. “That pressure is hitting consulting, transformation projects, and legacy infrastructure the hardest.”
Boloor said IBM has exposure to both sides of the shift. According to Fortune, he said IBM’s hybrid cloud business could benefit from AI adoption, while mainframes and project-based services face shorter-term pressure.
Patrick Moorhead, chief executive and chief analyst at Moor Insights & Strategy, told Fortune that rising AI-related costs are squeezing corporate technology budgets. “IT budgets are growing but price increases are growing more quickly than budgets,” Moorhead said. “Therefore other expenses need to be reduced to pay for it.”
Krishna has tried to reshape IBM around artificial intelligence and hybrid cloud since becoming CEO in 2020, Fortune reported. Moorhead said IBM’s technology remains strategic for customers and argued that demand could recover because companies cannot defer those systems for long periods.
IBM declined to comment beyond its statement, Fortune reported. The company is scheduled to report full results next Wednesday.
This story draws on original reporting from Fortune.