International Business Machines Corporation
IBM · NYSE
Next quarter
Reports Oct 21, 2026, after the close.
Consensus is $2.90 EPS for Sep 2026 across 6 estimates, ranging $2.78 to $3.12.
IBM Jun 2026
- 0.00%
- +0.43%
- $2.93
- $2.93
- —
- $17.16B
Reported results
- $17.16B
- 57.73%
- $2.17B
- $2.27
Highlights
- Quarterly result: Revenue was $17.16 billion, up 1.1% year over year and 7.8% from Q1; operating EPS was $2.93, exactly in line with consensus, while GAAP diluted EPS was $2.27.
- Guidance reset: IBM now expects full-year constant-currency revenue growth of 4%-5%, with currency neutral to growth at current rates; it maintained its expectation for free cash flow to increase by about $1 billion year over year.
- Software growth: Software revenue increased 5.1% to $7.76 billion, led by Data up 19% and Hybrid Cloud up 11%; recurring revenue represents approximately 80% of the segment and software ARR reached $24.6 billion, up about $2 billion year over year.
- Mainframe shortfall: Infrastructure revenue fell 7.4% to $3.84 billion, including a 42% decline in IBM Z; late-quarter client spending shifted toward servers, storage and memory, driving Distributed Infrastructure up 37%.
- Profitability: GAAP gross margin declined 1.0 point to 57.7% and pre-tax margin fell 0.9 point to 14.4%, but productivity actions lifted operating pre-tax margin 0.3 point to 19.2% and operating EPS rose 4.6% year over year.
- Consulting execution: Consulting revenue was essentially flat at $5.33 billion, while segment profit rose 15.1% to $647 million and margin expanded 1.6 points to 12.1%; second-quarter signings increased 5.0% to $5.03 billion.
- Cash and capital deployment: Operating cash flow rose $0.9 billion year over year to $2.6 billion, but free cash flow fell $0.3 billion to $2.5 billion; IBM paid $1.6 billion in dividends and ended the quarter with $8.2 billion of cash, restricted cash and marketable securities.
- Confluent integration: IBM spent $11.6 billion to acquire Confluent, adding $7.24 billion of goodwill in the first half and helping drive Data revenue growth, but increasing acquisition-related charges and amortization.
Analysis
IBM’s second quarter was a mixed print: operating EPS of $2.93 matched consensus, while revenue of $17.16 billion grew 1.1% year over year but fell short of management’s expectations. GAAP net income was $2.17 billion, down 1.3% from $2.19 billion a year ago, although it rose sharply from $1.22 billion in Q1; GAAP diluted EPS was $2.27 versus $2.31 a year ago and $1.28 in Q1. Compared with the prior quarter, the sequential improvement largely reflects normal seasonality and the absence of Q1’s lower earnings base rather than a broad acceleration.
The defining issue was a late-quarter spending shift that hurt IBM Z and associated Transaction Processing software. Infrastructure revenue declined 7.4%, with IBM Z down 42%, while Distributed Infrastructure rose 37% as customers prioritized servers, storage and memory. Software still grew 5.1%, supported by Data up 19% and Hybrid Cloud up 11%, and Consulting delivered better profitability despite flat revenue. IBM responded with productivity initiatives and updated full-year revenue guidance to 4%-5% constant-currency growth, while maintaining its roughly $1 billion free-cash-flow growth target. The quarter also highlighted the scale of its acquisition strategy: Confluent cost $11.6 billion and contributed to both software growth and higher non-GAAP adjustments.
Revenue and guidance
IBM’s reported revenue growth was modest and below internal expectations, prompting an updated full-year outlook. The shortfall was concentrated in software’s transactional businesses and Infrastructure, rather than the recurring software base or Consulting.
- Quarterly revenue: Revenue increased 1.1% year over year to $17.16 billion, including 1.1% growth at constant currency, compared with $16.98 billion in Q2 2025 and $15.92 billion in Q1 2026.
- Full-year outlook: IBM now expects constant-currency revenue growth of 4%-5% for 2026, with foreign exchange expected to be neutral at current rates. It continues to expect free cash flow to rise by about $1 billion year over year.
- Operating earnings: Operating pre-tax income rose 2.9% to $3.3 billion and operating EPS increased 4.6% to $2.93, compared with $2.80 in Q2 2025. GAAP pre-tax income declined 4.5% to $2.5 billion.
Software momentum
Software remained the strongest growth engine, but the quarter exposed a split between healthy recurring demand and weaker transactional activity tied to the IBM Z cycle. Management said approximately 80% of software revenue is recurring, while the remaining 20% is predominantly transactional and linked to IBM Z incumbency and enterprise license agreements.
- Segment growth: Software revenue rose 5.1% to $7.76 billion, or 4.6% at constant currency. Segment profit increased 8.9% to $2.50 billion, lifting margin 1.1 points to 32.2%.
- Growth businesses: Hybrid Cloud revenue grew 11.2% to $2.00 billion, Data increased 18.9% to $1.78 billion, and Automation rose 3.6% to $1.95 billion.
- Transactional weakness: Transaction Processing revenue fell 8.1% to $2.03 billion, reflecting the IBM Z shortfall and large deals that did not close as expected late in June.
- Recurring indicators: Software ARR reached $24.6 billion, up approximately $2 billion year over year. OpenShift ARR exceeded $2 billion.
Infrastructure spending shift
Infrastructure was the principal drag on the quarter. IBM said customers redirected spending toward servers, storage and memory to secure supply ahead of expected price increases, producing a sharp divergence between IBM Z and Distributed Infrastructure.
- Segment revenue: Infrastructure revenue declined 7.4% to $3.84 billion, while segment profit fell 13.4% to $835 million and margin contracted 1.5 points to 21.8%.
- IBM Z: IBM Z revenue decreased 42% year over year, materially worse than management expected despite the company describing the z17 launch as its strongest mainframe program start.
- Distributed Infrastructure: Revenue increased 37.3%, with double-digit growth in both Storage and Power; the business built an order backlog of nearly $500 million.
- Support: Infrastructure Support revenue declined 0.8% to $1.27 billion.
Consulting profitability
Consulting was broadly stable on revenue but showed the clearest operating improvement. Demand remained focused on application modernization, data transformation and cybersecurity, while productivity actions improved delivery economics.
- Revenue and margin: Consulting revenue was essentially flat at $5.33 billion, or up 1.1% at constant currency. Gross margin increased 1.4 points to 28.9%.
- Segment profit: Segment profit rose 15.1% to $647 million and segment margin expanded 1.6 points to 12.1%.
- Forward demand: Second-quarter signings increased 5.0% to $5.03 billion. Trailing twelve-month book-to-bill was approximately 1.05, and backlog stood at $30.8 billion.
Cash, acquisitions and capital
IBM generated stronger operating cash flow but lower free cash flow, while its acquisition program continued to reshape the balance sheet and the software portfolio. The company also maintained its shareholder return commitment through the quarterly dividend.
- Cash generation: Operating cash flow was $2.60 billion, up from $1.70 billion a year ago, while free cash flow was $2.54 billion versus $2.85 billion. First-half free cash flow was $4.76 billion, essentially flat year over year.
- Balance sheet: Cash, restricted cash and marketable securities totaled $8.2 billion, down $6.3 billion from year-end 2025. Debt was $62.0 billion, up $0.7 billion year to date.
- Confluent: The acquisition completed in March for total consideration of $11.6 billion, including $7.24 billion of goodwill additions and $3.83 billion of acquired intangible assets. IBM spent $10.5 billion on acquisitions in the first half.
- Shareholder returns: IBM paid $1.6 billion in dividends during the quarter and declared a quarterly dividend of $1.69 per share, payable September 10, 2026.
