IBM earnings analysis
What we found in IBM's 10-Q: the parts that mattered, the offsets in the same document, and what the company said about what comes next.
Our reading of the filing · Free to read, no account needed
IBM delivered Q2 revenue of $17.162 billion, up 1.1% year/year, but GAAP diluted EPS declined to $2.27 from $2.31 as an IBM Z shortfall drove a 7.4% Infrastructure revenue decline. Adjusted earnings were more resilient, with operating EPS up 4.6% to $2.93, although gross margin fell 1.0 point to 57.7%. Cash generation remained solid at $2.5 billion of Q2 free cash flow, but the Confluent acquisition reduced cash and contributed to a $6.293 billion deterioration in cash, restricted cash and marketable securities versus year-end.
The parts that mattered.
Pulled out of the filing itself, with the figures the company reported.
- Software supported modest total growth
- Q2 revenue increased 1.1% year/year to $17.162 billion. Software grew 5.1% to $7.761 billion, led by Data growth of 18.9% and Hybrid Cloud growth of 11.2%.
- Adjusted profit metrics improved
- Operating (non-GAAP) diluted EPS rose 4.6% year/year to $2.93, while operating pre-tax margin expanded 0.3 points to 19.2%.
- Consulting productivity lifted margins
- Consulting revenue was essentially flat at $5.327 billion, but segment profit increased 15.1% to $647 million and segment margin expanded 1.6 points to 12.1%.
- Operating cash conversion strengthened
- Operating cash flow increased $0.9 billion year/year to $2.6 billion in Q2. For the first half, operating cash flow increased $1.695 billion to $7.766 billion.
- Consulting demand indicators improved
- Consulting signings increased 5.0% to $5.034 billion in Q2, with a trailing-12-month book-to-bill ratio of approximately 1.05 and backlog of $30.8 billion.
- Distributed Infrastructure accelerated
- Distributed Infrastructure revenue increased 37.3% year/year, supported by double-digit Storage and Power growth, partially mitigating the IBM Z decline.
And the other side of it.
The offsets in the same document — the things a summary that only listed the good news would have left out.
- Results fell below management expectations
- Q2 GAAP diluted EPS declined 1.7% year/year to $2.27 and revenue grew only 1.1% to $17.162 billion; management said both Software and Infrastructure results were below expectations.
- IBM Z shortfall hit Infrastructure
- Infrastructure revenue declined 7.4% to $3.835 billion as IBM Z revenue fell 42.0%. Infrastructure gross margin contracted 3.1 points to 58.4% and segment profit fell 13.4% to $835 million.
- Client purchasing delays hurt transactions
- Transaction Processing revenue fell 8.1% to $2.030 billion after numerous large deals did not close on expected timelines in late June. This capital-sensitive area represented part of the Software shortfall.
- Revenue mix pressured gross margin
- GAAP gross margin declined 1.0 point year/year to 57.7%, driven by the revenue shortfall and mix. Software gross margin also fell 1.3 points to 82.6%.
- Acquisition reduced cash and raised leverage
- Cash, restricted cash and marketable securities declined $6.293 billion from year-end to $8.178 billion, while total debt increased $727 million to $61.987 billion following the Confluent acquisition and debt activity.
- Working-capital outflow and inventory build
- Working capital worsened to negative $7.514 billion at June 30, 2026 from negative $1.714 billion at December 31, 2025. Management cited higher inventory to support anticipated second-half demand.
What they reported.
What the company itself reported, taken out of the document.
- Earnings per share
- $2.27
- Gross margin
- 57.7%
- Segment
- Software: $7.761 billion, +5.1% year/year
- Segment
- Consulting: $5.327 billion, +0.2% year/year
- Segment
- Infrastructure: $3.835 billion, -7.4% year/year
- Segment
- Financing: $186 million, +12.2% year/year
What they said about what is next.
The 10-Q does not provide a quantitative revenue or EPS outlook. Management states it remains confident in growth opportunities, is accelerating productivity actions, and plans to invest more than $10 billion in quantum over the next five years.
The filing reads worse than the one before it.
What came before.
- 10-Q · April 23, 2026
- IBM reported Q1 2026 revenue of $15.917 billion (up 9.5% YoY, 6.1% CC) and GAAP diluted EPS of $1.28 (up 14.3% YoY); operating (non‑GAAP) diluted EPS was $1.91 (up 19.4%). Software, Infrastructure and Consulting all…
This is our reading of a public filing, not the filing. Read the original on SEC.gov · Educational only. Nothing here is investment advice.
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