IBM's Mainframe Woes Mask Dependable Income Story

International Business Machines Corporation (IBM) has been on an unusual ride this summer. In mid-July, the company informed shareholders of a 'heads-up' letter that its mainframe sales were weaker than expected. The full second-quarter report released on July 22 confirmed these concerns, with a 42% drop in mainframe revenue and a significant forecasting miss.

Despite these setbacks, IBM's management maintains a Buy rating for the company. They attribute the full-year revenue guidance of 4-5% to acquisitions and resilient recurring software revenue, which is holding steady. However, organic growth remains flat.

The market now views IBM as a stable investment option due to its dependable income and cash flow story. The company boasts a 2.8% yield and has increased its dividend by 31 consecutive years.

For investors looking for future upside, the z18 mainframe launch in 2028 holds promise. However, there are near-term risks associated with hardware revenue gaps and slower customer adoption.