IBM has released selected preliminary second-quarter 2026 results showing revenue of $17.2 billion, up 1% from a year earlier, but a sharper-than-expected decline in Infrastructure and weaker transaction-processing software left the quarter below management’s expectations. The figures are not final and could change slightly when IBM completes its financial reporting.

Software revenue rose 5%, while Consulting was flat on a reported basis and increased 1% at constant currency. Infrastructure revenue fell 7%, creating the biggest drag on the quarter. Chairman and CEO Arvind Krishna said IBM did not react quickly enough to changing customer spending patterns and that several large deals failed to close within the expected period.

IBM’s preliminary Q2 2026 numbers

IBM reported diluted GAAP earnings of $2.27 per share, down 2% year over year. Operating, or non-GAAP, earnings increased 5% to $2.93 per share.

The GAAP gross profit margin declined 100 basis points to 57.7%, while the operating gross margin fell 70 basis points to 59.4%. GAAP pre-tax margin slipped 90 basis points to 14.4%. However, operating pre-tax margin improved 30 basis points to 19.2%, helped by continuing productivity measures.

For the first six months of 2026, IBM generated $7.8 billion in net cash from operating activities and $4.8 billion in free cash flow.

The slowdown follows a stronger opening to the year, when software and infrastructure both posted broad growth. That earlier performance is covered in this review of IBM’s Q1 2026 revenue and free cash flow results.

Why Infrastructure and Software fell short

IBM had expected Infrastructure growth to cool as the company moved beyond the initial launch period for its z17 mainframe. The launch delivered the strongest start to a mainframe program in IBM’s history, making tougher year-over-year comparisons likely.

The slowdown was still worse than IBM had planned. Krishna said the shortfall was concentrated in IBM Z and its associated software stack, particularly Transaction Processing.

During the final weeks of June, customers redirected quarterly capital budgets toward servers, storage and memory products to secure supply-constrained equipment before anticipated price increases. IBM expected supply-chain pressures to influence buying decisions, but management said it underestimated the scale of the spending shift.

Fast-moving, industry-wide cybersecurity concerns also absorbed customers’ attention. IBM said those conditions required near-perfect execution, but its teams did not adjust quickly enough. Numerous large transactions moved beyond their expected closing dates, accounting for most of the shortfall. Krishna described the external pressures as realities rather than excuses and accepted responsibility for the execution failure.

Red Hat and distributed infrastructure remain strong

Several parts of IBM’s portfolio continued to grow. Red Hat revenue accelerated sequentially to 11%, showing continued demand for hybrid cloud and enterprise open-source technology. Recent acquisitions HashiCorp and Confluent also performed strongly.

Consulting signings grew, led by contributions from generative AI projects, even though recognized Consulting revenue was nearly unchanged. Productivity initiatives also helped IBM expand its operating pre-tax margin.

Distributed Infrastructure recorded its best reported performance, with revenue up 37% on strong Power and Storage demand. IBM exited the quarter with an approximately $500 million backlog in the business.

The z17 program remains well ahead of its predecessor. IBM said it was running at nearly 130% on a program-to-program comparison with z16, previously the company’s strongest mainframe cycle. Clients representing 85% of installed MIPs, a measure of mainframe processing capacity, were maintaining or increasing capacity.

IBM highlights Lightwell and quantum expansion

IBM is continuing to invest heavily in cybersecurity, AI and quantum computing despite the quarterly disappointment.

The company highlighted Lightwell, a $5 billion IBM and Red Hat commitment backed by frontier AI capabilities and more than 20,000 engineers. It is designed as a trusted enterprise clearinghouse for identifying and addressing open-source software vulnerabilities. Early adopters include Bank of America, BNY, Citi, Goldman Sachs, JPMorganChase, Mastercard, Morgan Stanley, Royal Bank of Canada, State Street, Visa and Wells Fargo. General availability was announced on July 8.

IBM also announced a letter of intent with the U.S. Department of Commerce to establish Anderon, described as the world’s first pure-play quantum wafer foundry. The plan includes $1 billion in proposed CHIPS incentives and a $1 billion IBM cash contribution. More background is available in this explanation of IBM’s Anderon quantum wafer foundry.

The company has separately committed more than $10 billion to quantum computing over five years, covering research, capital spending, manufacturing expansion, acquisitions and ecosystem development. IBM remains on track to target 2029 for its first large-scale fault-tolerant quantum computer.

IBM is now accelerating initiatives intended to improve sales coverage and execution, including reaching more clients beyond its largest accounts. The company will provide complete second-quarter results, updated full-year expectations and further details on corrective actions during its Q2 2026 earnings call on July 22 at 5 p.m. ET.