Revenue from IBM’s z mainframe portfolio declined 42% in the quarter ended June 30, dragging infrastructure revenue down 7% compared to the year-ago quarter. But Big Blue executives remain positive on the mainframe’s role as an important AI platform.
After warning of an earnings shortfall, IBM lowered its full-year forecast. It now expects 2026 revenue to grow between 4% and 5%, rather than its previous forecast of more than 5% growth. Some parts of its business did well: to investors released prior to IBM’s July 22 earnings call, CEO Arvind Krishna warned of the earnings shortfall and laid out current challenges. He related the infrastructure performance shortfall to “wrapping on the launch of z17 in the second quarter” and stated: “Given this was the strongest start to a mainframe program in our history, we expected Infrastructure revenue to decline low-single digits for the year, beginning this quarter. What played out was worse than our expectations, driven by a shortfall in our Z performance and the associated software stack, primarily in Transaction Processing.”
In the last few weeks of June, customers shifted capex spending and started purchasing more AI infrastructure components in the form of servers, storage, and memory “to secure supply-constrained infrastructure ahead of expected price increases,” Krishna stated. “This dynamic impacted client buying patterns. While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.”
Yet despite challenges this last quarter, z17 remains at nearly 130% growth program-to-program, according to IBM. That’s “well ahead of z16, which was our strongest program on record, with clients representing 85% of installed MIPs maintaining or growing capacity,” the July 14 letter stated.
Mainframe infrastructure momentum is expected to continue, and IBM is anticipating strong workload growth and investing in AI capabilities with Spyre AI accelerator, and clients deploying Watson X Code Assistant for Z are growing MIPS capacity three times faster than those who are not.”
“In a world where infrastructure costs are rising and efficiency matters more than ever, IBM Z offers a compelling economic advantage,” Kavanaugh continued. “Depending on the size and complexity of workloads, clients can realize a 2 to 15x total cost of ownership benefit versus moving these workloads off the platform, reinforcing why the platform remains central to their operations and positioning us to capture additional value as AI workloads grow.”
“We see no evidence of clients moving off mainframe,” Kavanaugh added. “Clients continue to invest in IBM Z to modernize mission-critical workloads with a focus on resiliency and security.”
In responding to an analyst question, Kavanaugh said three key things drive mainframe demand and purchasing requirements:
“One is capacity workload. It’s the most important determinant. 85% Of the installed MIPS capacity out there in the marketplace today running all those core mission critical workloads are either stable or growing. Clients are adding capacity and workload to mainframe, the viability. And by the way, that’s coming in new AI workloads, analytics workloads, Linux-based workloads, and those MIPS are growing program to date over 15 to 20% installed capacity,” Kavanaugh said.
Number 2 is economic factors. “We don’t talk a lot about this, but I think it’s important for our investors to understand things like total cost of ownership. Depending on the size and complexity of the workload, we have anywhere from a 2 to a 15x TCO advantage running on the mainframe [over smaller server systems]. Again, we do not see any evidence of clients migrating off mainframe and lease propensity, which is a great indicator,” Kavanaugh said.
The third driver is AI. “When you look at it, applications, data security, all on the platform, we do 450 billion inferences per day at 1 millisecond with 8 nines availability,” Kavanaugh said. “We’ve got clients that have already purchased over 50% of our Spire inferencing, and those clients that have purchased that are growing MIPS capacity, the way [we monetize value], by over three times faster than others.”
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