Arvind Krishna's Letter to IBM Investors

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IBM released preliminary Q2 2026 financial results showing revenue of $17.2 billion, up 1% year-over-year, but below internal targets. Software performed well, up 5%, with Red Hat revenue growth accelerating to 11% sequentially and recent acquisitions including HashiCorp and Confluent posting strong early results. Consulting revenue was flat (up 1% at constant currency), while Infrastructure fell 7%.\n\nCEO Arvind Krishna attributed the Infrastructure shortfall to a worse-than-expected decline in the z17 mainframe cycle, particularly in Transaction Processing software. In late June, clients reprioritized quarterly capex toward servers, storage, and memory to secure supply-constrained hardware ahead of expected price increases — disrupting IBM's deal pipeline and causing numerous large deals to miss close timelines.\n\nYear-to-date net cash from operations stands at $7.8 billion with free cash flow of $4.8 billion. Operating EPS rose 5% to $2.93 despite revenue pressure. Operating pre-tax income margin improved 30 basis points to 19.2%.\n\nKrishna framed the miss as an execution and timing problem rather than structural demand erosion, pointing to strong AI and hybrid cloud positioning as the medium-term growth driver.