Key Highlights

● Second-quarter revenue reached $17.162 billion, up 1% from a year earlier.

● Software revenue rose 5.1% to $7.761 billion, the only major segment growing meaningfully.

● IBM Z sales fell 42% while Distributed Infrastructure rose 37%.

● Full-year guidance calls for 4% to 5% constant-currency revenue growth.

Software carries the quarter

International Business Machines Corporation (NYSE:IBM) reported second-quarter 2026 results on 22 July 2026 in which growth was concentrated in software while infrastructure revenue declined sharply. Group revenue was $17.162 billion, up 1% from $16.977 billion a year earlier, and software was the only major segment to expand at a meaningful pace. That mix explains why attention centres on the software portfolio, and why the steep fall in IBM Z sales stood out in an otherwise steady set of figures. Chief executive Arvind Krishna said the company is confident in its strategy and portfolio.

Business and sector position

IBM sells hybrid cloud and artificial intelligence capabilities to large enterprises and governments through three main segments: Software, Consulting and Infrastructure, alongside a small Financing arm. Software spans hybrid cloud platforms, automation and data products; Consulting helps clients adopt and integrate technology; Infrastructure covers mainframes, servers and storage. The company competes with hyperscale cloud providers, enterprise software groups and global services firms, all pursuing the same corporate technology budgets and long-running modernisation programmes. Its installed base of mainframe and hybrid cloud clients gives it long-standing relationships that few competitors can match.

What the latest report showed

According to IBM's release, Software revenue rose 5.1% to $7.761 billion, or 4.6% at constant currency. Consulting was broadly flat at $5.327 billion, up 0.2%, or 1.1% at constant currency. Infrastructure fell 7.4% to $3.835 billion, with IBM Z down 42% while Distributed Infrastructure rose 37%. Financing revenue was $186 million, up 12.2%. The release also said Power and Storage built an order backlog of nearly $500 million and grew at a record pace during the quarter. The segment detail shows how unevenly the portfolio performed: software and distributed hardware advanced, while consulting stood still and mainframe revenue contracted.

Financial performance and context

GAAP net income was $2.165 billion against $2.194 billion a year earlier, and GAAP diluted earnings per share were $2.27 compared with $2.31. Operating earnings per share, a non-GAAP measure, rose 5% to $2.93. Free cash flow was $2.540 billion, roughly $0.3 billion lower than a year earlier, although the six-month total of $4.760 billion was flat. For the full year, IBM guides to constant-currency revenue growth of 4% to 5% and about $1 billion more free cash flow than in 2025, with improved pre-tax margin expansion. Six-month revenue was $33.079 billion, up 5%. Currency was described as neutral to full-year growth at current exchange rates, so reported and constant-currency figures should converge.

Risks and uncertainties

Mainframe sales tend to move with product cycles, so a 42% decline in IBM Z leaves the infrastructure segment exposed to timing effects that the release does not quantify. Consulting growth remains close to zero, and the full-year guidance implies the second half must deliver faster growth than the first six months. Currency movements, client budget caution and competition in artificial intelligence and hybrid cloud software could each affect results. Slower client technology spending would weigh most heavily on Consulting revenue.

Third-quarter test for software

The next reference point is IBM's third-quarter 2026 report, which will show whether software growth holds near the second-quarter pace and whether Consulting moves above flat. Also worth tracking are the trajectory of IBM Z against its prior-year comparison, the conversion of the Power and Storage backlog into recognised revenue, and whether free cash flow progresses towards the increase of roughly $1 billion that management has reaffirmed. Any change to the 4% to 5% constant-currency revenue outlook would be an important signal for the remainder of the year. The release did not disclose a separate figure for artificial intelligence business, so updates on commercialisation would also be informative.