The buying spree took spending away from IBM’s high-margin mainframe computers, powerful machines used by banks and large corporations to process millions of transactions, and related software.
IBM’s infrastructure business, which includes its flagship mainframe products, saw sales decline 7%.
Software revenue increased 5%, but was still below expectations.
IBM said cybersecurity concerns across the technology industry also distracted customers during the quarter, causing many large transactions to fail to close on time.
These concerns come with the release of Anthropic’s Mythos AI model, which raises alarm over its ability to find weaknesses in computer networks that hackers can exploit.
In response, companies have been working to strengthen their cyber defenses in lieu of previously planned spending, analysts said.
With IBM’s tailwind, there will be more talk about how the AI revolution will impact traditional software companies (also known as Software as a Service, or SaaS companies). IBM is a key member, along with companies such as Salesforce, Adobe, and Intuit.
After IBM’s warning, the stock prices of these companies fell.
Earlier this year, Wall Street went into a brief frenzy called the SaaS apocalypse after analysts predicted that the sector was doomed as AI models could provide the same functionality to everyday users.
On the positive side, IBM’s Red Hat division, which sells open source software, posted an 11% revenue increase.
The company’s server and storage business outside of mainframes jumped 37% as customers bought its equipment.
IBM also announced Lightwell, a US$5 billion initiative to fix vulnerabilities in open source software, with support from major banks including Bank of America, JPMorgan Chase and Goldman Sachs.
– AFP
