IBM stock slides after preliminary results miss Wall Street estimates

IBM shares fell sharply Tuesday after the company said its second-quarter results came in below Wall Street’s expectations. For everyday investors, the move shows how quickly a revenue miss can reset sentiment, especially when management says customer spending shifted late in the quarter.

CNBC reported that IBM shares dropped more than 17% in premarket trading after the company released preliminary second-quarter figures. Premarket trading refers to stock buying and selling before the regular U.S. market session opens, and price moves there can signal how investors are reacting to fresh news before the broader market gets going.

IBM reported adjusted earnings of $2.93 per share on revenue of $17.2 billion, according to CNBC. Analysts had expected adjusted earnings of $3.01 per share and revenue of $17.86 billion, based on FactSet estimates cited by CNBC.

Adjusted earnings strip out certain items that companies say do not reflect normal operations. Investors often watch the figure because it can make results easier to compare across quarters, though the exact adjustments vary by company.

What went wrong in the quarter

IBM CEO Arvind Krishna attributed the shortfall to weakness in the company’s software and infrastructure businesses, according to CNBC. IBM sells a mix of hardware, software and consulting services, so a shift in customer budgets can affect which parts of the business perform best in a given quarter.

In a letter to investors quoted by CNBC, Krishna said that in the final weeks of June, customers redirected quarterly capital spending toward servers, storage and memory products. Capital spending, often called capex, means money a company uses to buy long-term assets such as technology equipment.

Krishna said those customers were trying to secure infrastructure that was constrained by supply before expected price increases, according to CNBC. That shift mattered because money aimed at hardware purchases was not spent on some of the software and infrastructure deals IBM had expected to close.

Krishna also said IBM had anticipated some pressure tied to supply chain issues, but not the scale of the customer budget shift, CNBC reported. Supply chain pressure can affect availability and pricing for hardware components, including memory chips, which are used in servers and other computing systems.

Delayed deals hit the numbers

Krishna told investors that IBM’s teams needed to execute well under those conditions and that the company “faltered,” according to CNBC. He said IBM did not adjust quickly enough and that several large deals failed to close on the timelines the company had expected.

Those delayed transactions drove most of the shortfall, Krishna said in the investor letter cited by CNBC. For investors, that distinction matters: a delayed deal may still happen later, but a missed quarterly target can still pressure the stock because earnings estimates are built around timing as well as total demand.

The preliminary results gave investors an early look at a weaker-than-expected quarter before the company’s full report. IBM’s revenue miss, combined with management’s explanation that late-quarter spending patterns changed, put attention on whether customers are delaying software and infrastructure purchases or temporarily shifting budgets because of hardware supply concerns.

This story draws on original reporting from CNBC.