International Business Machines shares plunged more than 20% in premarket trading Tuesday after preliminary second-quarter results missed Wall Street expectations, with IBM blaming a sudden shift in customer spending toward servers, storage and memory chips as companies raced to secure scarce hardware.
IBM reported adjusted earnings of $2.93 a share on revenue of $17.2 billion, according to CNBC. Analysts had expected adjusted earnings of $3.01 a share and $17.86 billion in revenue, leaving the technology company short of forecasts on both closely watched measures.
The scale of the stock selloff reflected more than a routine quarterly miss. IBM Chief Executive Arvind Krishna said customers changed their capital-spending priorities late in the quarter, redirecting money from software purchases toward physical infrastructure as concerns about supply and future prices intensified.
"In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases," Krishna said in a letter to investors.
The spending shift underscores how pressure in the technology hardware market is beginning to reshape corporate budgets. Memory chips and other infrastructure have become increasingly important as companies expand computing capacity, forcing technology executives to decide which investments can be delayed and which equipment must be secured immediately.
Krishna said IBM had prepared for some disruption related to supply chains but underestimated how aggressively customers would reorder their spending plans.
The company "anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," Krishna said.
IBM's chief executive also acknowledged that the company failed to respond quickly enough as conditions changed. Rather than placing the blame entirely on customers or external pressures, Krishna said execution problems inside IBM contributed directly to the quarterly shortfall.
"These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall," Krishna said.
The failure to complete large transactions on schedule is particularly significant for IBM, where the timing of enterprise deals can have an outsized effect on quarterly revenue. Krishna's comments suggest that changing customer priorities were compounded by IBM's inability to adjust its sales process quickly enough to protect expected closings.
