IBM closed down more than 25 percent Tuesday, its worst single-day decline in at least 58 years, after the company issued a preannouncement warning that its second-quarter results would fall well short of Wall Street's expectations. Analysts had expected adjusted EPS of $3.02 on revenue of $17.86 billion.
IBM delivered adjusted EPS of $2.93 and revenue of $17.2 billion.
That gap, roughly $660 million in missed revenue, was enough to wipe out more than a quarter of the company's market value in a single session.
CEO Arvind Krishna explained what happened in a statement that amounts to a case study in how the global memory shortage is cascading through the technology industry in ways nobody fully anticipated.
IBM had expected a low single-digit decline in its z17 mainframe business for the quarter. What it got was significantly worse, because in the final weeks of June, enterprise customers abruptly shifted their capital expenditure spending toward servers, storage and memory purchases to lock in supply before expected price increases.
That capex reprioritization blindsided IBM.
"We anticipated some supply chain related impact in our expectations," Krishna said. "We did not anticipate the magnitude of the capex reprioritization."
In plain English, customers who would have been spending on IBM software and mainframe products instead spent that same money stockpiling AI servers and memory chips.
IBM got the spillover instead of the primary budget.
IBM is not alone in the pain. Oracle is down 33 percent year to date. Microsoft has fallen 20 percent. Accenture is down 50 percent.
The enterprise technology spending cycle has been disrupted by AI infrastructure priorities, and IBM's preannouncement confirmed the disruption is more severe than the market had priced in. The full earnings call is July 22.