IBM (NYSE:IBM) lowered its revenue growth expectations for 2026 after weaker demand for data-centre mainframe systems weighed on quarterly performance, although the company maintained confidence in its profitability and long-term artificial intelligence strategy.
The updated guidance follows a challenging quarter for the technology group, with infrastructure sales continuing to soften despite modest overall revenue growth.
Revenue guidance revised lower
IBM now expects full-year revenue to increase by between 4% and 5%, compared with its previous forecast of approximately 5%.
The revised outlook comes after investors reacted negatively to the company’s preliminary second-quarter results, which triggered a sharp decline in the share price.
Infrastructure sales remain under pressure
Second-quarter infrastructure revenue fell 7% year over year to $3.8 billion, with sales of data-centre mainframe systems dropping 42%.
Despite the slowdown in this business, Chief Executive Arvind Krishna said IBM continues to adapt to changing customer demand.
He described the company’s transformation as a “structural shift” and said IBM remains well positioned to help enterprise customers capitalise on the expanding artificial intelligence market.
Cash generation remains resilient
IBM generated $2.5 billion in free cash flow during the quarter, down $300 million from the same period last year.
Free cash flow for the first six months of the year totalled $4.8 billion, broadly unchanged from a year earlier.
Adjusted earnings per share reached $2.93, while quarterly revenue increased 1% year over year to $17.2 billion.
The company also reiterated its expectation for improved pre-tax income margin expansion during the full year.
Management remains focused on execution
Chief Financial Officer James Kavanaugh acknowledged the weaker revenue environment but said the company continues to prioritise operational execution.
“Although we faced revenue headwinds late in the second quarter, we continued to focus on the fundamentals of our business, including driving productivity, strengthening our portfolio, and generating free cash flow,” Kavanaugh said.
IBM shares traded modestly higher in U.S. premarket trading following the earnings release.
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