International Business Machines Corp.

Core results & what disappointed (Q2 “miss”): - IBM delivered +1% revenue growth in Q2 2026, with 30 bps operating pretax margin expansion and +5% diluted operating EPS growth. - The quarter fell short of expectations due mainly to CapEx-sensitive large deals slipping, not broad demand collapse (Jim said tens of large deals failed to close on expected timelines in late June). - Software mix impact: transaction processing revenue -9%, while data +18% and automation +3% (shift driven by clients prioritizing other infrastructure CapEx ahead of price/supply constraints).

Most important guidance / forecasts (full-year): - Reconfirmed outlook: FY 2026 revenue growth: +4% to +5% (constant currency) (vs prior higher expectations; bottom end is a “base case”). - Software growth raised/updated to +6% to +8% for FY (Jim: assumes recent spending dynamics persist at the low end; more typical conversion at the high end). - Infrastructure: low single-digit growth expected for FY, driven by Distributed Infrastructure + strong IBM Z program-to-program performance. - Free cash flow: IBM maintains plan to grow free cash flow by ~$1B in 2026; management emphasized maintaining free-cash-flow realization and margin discipline.

Why management thinks demand is “deferred, not destroyed” (surprising but key): - IBM’s view is that the slip was timing-related because the deals are enterprise license agreements (ELAs) typically treated as capital investments—so when clients reallocate CapEx, transaction-heavy ELA revenue timing shifts. - 1/3 of the “slipped” large CapEx deals already closed in the first few weeks of Q3 (management cited this as evidence of deferral, not permanent loss). - Underlying demand signals: IBM highlighted healthy recurring software (about 80% of software revenue is recurring) and strong consumption/subscription performance.