IBM Mainframe Business Hits Rock Bottom, But Software Segment Keeps Growing
IBM's mainframe business had its worst quarter in years, with revenue falling 7% and Z mainframe revenue plummeting 42%. However, the company's software segment continued to grow, driven by recurring subscription products. The software segment is the highest-margin and fastest-growing part of IBM's business.
The decline in mainframe revenue was attributed to a cyclical dynamic, with large enterprises delaying purchases due to anticipated supply shortages. CEO Arvind Krishna noted that some customers redirected capital towards servers and storage ahead of these shortages, leading to a lumpy revenue recognition.
Despite the disappointing quarter, IBM's gross margins are rising steadily, driven by the growing share of high-margin software in total revenue. The company's cumulative AI book of business exceeded $7 billion, with consulting segment profit growing 15% despite flat revenue due to improved margins.