AI Dethrones Mainframe Sales, but IBM Says It's a Temporary Issue

AI gives and AI takes away. This can be summarized as the latest financial results of IBM, which saw very solid revenue but below expectations. The cause can be traced back to the hardware market, strangled by AI, leading to higher component prices and postponing the purchase of new mainframes. As a result, IBM has lowered its revenue estimates for the entire year.

AI Will Not Kill Mainframes, But It Poses Challenges for IBM For fifty years, people have been saying that mainframes will die: first due to the so-called "mini computers" that took up only half a room instead of a whole room, then due to PCs and servers, the cloud, and finally AI. However, mainframes will likely remain with us for a long time to come. The issue is how much the market will allow IBM to continue selling them at the pace before the current crisis.

IBM's CEO, Arvind Krishna, took the unprecedented step last week of warning investors that financial results would be well below expectations. The stock lost 25% in just one day. Krishna explained that the disappointing results were due to the shift in customer spending: those who were supposed to buy new mainframes decided to postpone that purchase to focus on servers, memory, and storage, whose prices continue to rise.

For this reason, IBM, which had achieved very positive results thanks to artificial intelligence, reported "only" $17.2 billion in revenue against the expected $17.8 billion, with a 58% margin leading to profits of $9.9 billion and net earnings of $2.2 billion.

The company also reduced its forecasts for the entire fiscal year. The reason is that mainframe sales have dropped by 42%, a remarkably significant figure in itself, but even more so because CFO Jim Kavanaugh stated during the investor call presenting the results that for every dollar customers spend on IBM hardware, they generate 3 dollars in services and software.

According to both the CEO and CFO, this is a temporary phase and the market will soon return to normal. Krishna claims that customers will still purchase new mainframes, sooner or later, and some have even done so during the current quarter.

It was not anticipated by anyone that AI would influence the mainframe market indirectly by reducing companies' spending capabilities due to the hardware crisis. But Krishna warns: "We do not see evidence that customers are abandoning mainframes." It won't be AI that leads to their demise. Perhaps.