New Delhi, July 15 (IANS) US-based technology giant IBM’s Chairman and CEO Arvind Krishna has admitted that the company underestimated the scale of customers’ shift in spending towards artificial intelligence (AI) infrastructure and failed to adapt quickly enough, saying we faltered in the second quarter as the trend weighed on its revenue.

In a letter to investors released alongside selected preliminary second-quarter results, Krishna said IBM had expected some supply chain-related disruption but did not anticipate the magnitude of customers reprioritising capital expenditure towards servers, storage and memory to secure AI infrastructure.

“What played out was worse than our expectations,” Krishna wrote.

“These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall,” he added.

According to the company, clients shifted their quarterly technology budgets in the final weeks of June to secure supply-constrained infrastructure ahead of expected price increases.

IBM also said rapidly evolving, industry-wide cybersecurity concerns distracted customers during the quarter.

The company reported preliminary second-quarter revenue of $17.2 billion, up 1 per cent year-on-year. Following this, IBM shares plunged 25 per cent.

Meanwhile, software revenue rose 5 per cent, consulting revenue remained flat, while infrastructure revenue declined 7 per cent.

IBM’s diluted earnings per share fell 2 per cent to $2.27, although operating (non-GAAP) earnings per share increased 5 per cent to $2.93.

Krishna said the revenue shortfall was largely driven by weaker-than-expected performance of IBM’s Z mainframe business and its associated software stack, particularly transaction processing software.

He also said IBM continues to invest aggressively in artificial intelligence and quantum computing.

“While performance in the quarter was below our expectations, we have conviction in the strength of our portfolio and the strategic transformation of our business,” Krishna said.

IBM said it is still finalising its quarterly financial statements, with the complete second-quarter results scheduled to be released on July 22.

–IANS

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