IBM (NYSE:IBM) released preliminary financial results for the second quarter of 2026, reporting revenue of $17.2 billion, up 1% from a year earlier but below the company’s expectations as weaker performance in its Infrastructure and Software divisions weighed on results.
The company said lower-than-anticipated mainframe sales and delayed customer spending contributed to the softer quarter.
Infrastructure Business Weighed Down by Mainframe Weakness
Infrastructure revenue declined 7% during the quarter, reflecting lower sales of IBM’s Z mainframe systems and the related software portfolio, particularly within its Transaction Processing business.
Chairman and Chief Executive Officer Arvind Krishna said part of the shortfall resulted from customers redirecting capital expenditure toward servers, storage and memory ahead of anticipated supply shortages and price increases late in June.
He also noted that several large customer contracts were not completed within the expected timeframe, delaying revenue recognition.
Software Growth Continues Despite Miss
IBM’s Software division recorded 5% revenue growth during the quarter, while Consulting revenue was unchanged on a reported basis and increased 1% when adjusted for constant currency.
Although Software continued to expand, the overall performance fell short of internal expectations because of weaker infrastructure-related software demand.
Earnings and Cash Flow
On a GAAP basis, diluted earnings per share were $2.27, down 2% from the prior year.
Operating earnings, excluding certain items, reached $2.93 per share, representing a 5% increase year over year.
Gross profit margin under GAAP declined by 100 basis points to 57.7%, while free cash flow for the year to date totalled $4.8 billion.
Red Hat and AI Business Remain Bright Spots
Several areas of the business continued to deliver solid growth.
Revenue at Red Hat increased 11%, while Distributed Infrastructure revenue rose 37%.
IBM also reported continued growth in consulting contract signings linked to generative artificial intelligence projects.
The company’s z17 mainframe programme remained strong, performing at approximately 130% of its predecessor on a cumulative basis.
IBM Expands Security and Quantum Investments
Alongside its preliminary earnings release, IBM announced Lightwell, a $5 billion initiative supported by more than 20,000 engineers to help organisations address vulnerabilities in open-source software.
The platform became generally available on 8 July, with early adopters including Bank of America, Goldman Sachs, JPMorgan Chase and Visa.
IBM also revealed a letter of intent with the U.S. Department of Commerce to develop a new quantum wafer foundry named Anderon.
The project will receive $1 billion in incentives under the CHIPS Act, alongside a matching $1 billion investment from IBM.
Separately, the company said it plans to invest more than $10 billion in quantum computing over the next five years.
Final Results Due Later This Month
IBM cautioned that its final second-quarter financial results may differ slightly from the preliminary figures released on Tuesday.
The company is scheduled to discuss its full results during its earnings conference call on 22 July 2026.