Recently, IBM, a technology giant with a history of 115 years, announced its latest quarterly financial report. Its overall performance was far lower than Wall Street's expectations. The financial report showed that although the company still generated US$17.2 billion in revenue, US$9.9 billion in gross profit, a profit margin of nearly 58%, and a net income of US$2.2 billion in the quarter, its stock price suffered the largest single-day decline in history due to the heavy damage to its core infrastructure business.
Behind this poor report card, the core root cause is that IBM's mainframe business revenue, which is a "cash cow", fell sharply by 42%. IBM Chief Financial Officer Jim Cavanaugh explained that this decline has triggered a chain reaction, because on average, every dollar of mainframe hardware sold by the company can drive three dollars of software revenue.
However, IBM CEO Alvin Krishna and management emphasized on the earnings call that this is just a periodic fluctuation and there is no sign that customers are abandoning mainframe systems. Management pointed out that dozens of customers who originally planned to purchase new consoles chose to postpone their purchases this quarter. The reason is that the AI infrastructure boom during the same period caused the cost of other hardware such as data center equipment and personal computers to soar by 15% to 30%, forcing these enterprise customers to temporarily adjust their budgets and prioritize filling huge price gaps in other areas.
Although enterprise hardware manufacturers such as Dell, HP and Apple have previously issued warnings that the rising costs of memory and other components caused by the AI outbreak are forcing them to raise prices, Krishna is convinced that these customers who have delayed purchases will eventually purchase new hosts and supporting software contracts. In fact, some customers have completed purchases in the last quarter. The industry generally believes that although the demise of host technology has been predicted for decades, this traditional business still shows tenacious vitality after experiencing the impact of this AI wave.