NEW YORK, July 22, 2026, 16:25 EDT – IBM NYSE:IBM reduced its revenue guidance for 2026, with its revised cash-flow target placing greater emphasis on the company’s performance for the second half.
- IBM revised its constant-currency revenue growth outlook to 4%-5%, down from over 5%.
- Revenue for the second quarter was $17.16 billion and adjusted earnings came in at $2.93 per share.
- Initial projections indicate free-cash-flow growth of approximately 10.6% for the second half.
IBM lowered its full-year revenue growth outlook on Wednesday, while maintaining its free-cash-flow target, raising expectations for the latter half.
Initial calculations based on company data estimate necessary free cash flow in the second half at close to $10.97 billion. This figure is approximately $1.05 billion, or 10.6%, higher than the prior period.
Free cash flow for the first half totaled $4.76 billion, a minor decrease from $4.81 billion in the same period last year. Achieving the full-year goal now hinges on a significant boost in the latter part of the year.
U.S. cash markets finished at the dateline. IBM stock dropped close to 2% in standard trading but advanced approximately 3% in after-hours trading.
The company has revised its constant-currency revenue growth outlook to a range of 4% to 5%, down from the earlier prediction of above 5%. The new midpoint of 4.5% is below the analysts’ average estimate of 4.8%.
Revenue for the second quarter increased by 1% to $17.16 billion. Analysts had expected between $17.48 billion and $17.58 billion. Adjusted earnings per share reached $2.93, below the consensus estimate of $2.97.
Software revenue increased by 5% to $7.76 billion. Red Hat posted growth of 11%, while transaction-processing sales declined 8%.
Infrastructure revenue was down 7% at $3.84 billion. IBM Z revenue declined 42% compared to the prior year’s launch cycle. Distributed infrastructure revenue increased by 37%.
Chief Financial Officer James Kavanaugh attributed the result to the mainframe stack. He stated it “impacted IBM’s growth by over five points.” IBM’s prior expectation was for an impact of only one or two points. MarketScreener
The cash-flow bridge is based on both IBM’s disclosed numbers and its estimated yearly objective.
| Free cash flow, $ billion | 2025 | 2026 |
|---|---|---|
| First half, reported | 4.81 | 4.76 |
| Second half, realized or needed | 9.93 | ~10.97 |
| Full year, reported or goal | 14.73 | ~15.73 |
| Second-half year-over-year change | — | ~10.6% |
Initial estimates based on IBM’s projection of a rise of “about $1 billion.”
Focus on cash generation has increased. IBM allocated $10.5 billion to acquisitions this year. In June, cash, restricted cash and marketable securities totaled $8.2 billion.
Margins provided a degree of support. Adjusted pretax margin increased by 30 basis points, even as gross margin dropped by 70 basis points. IBM has lifted its full-year outlook for pretax margin expansion.
Shares dropped roughly 25% on July 14 following IBM’s warning of a revenue shortfall. This marked the company’s largest single-day drop in over 100 years.
IBM’s earnings call is scheduled for 5 p.m. EDT. ServiceNow NYSE:NOW will also host its call at that hour, offering a further indication of enterprise software demand.
In the coming week, investor attention will center on mainframe expectations and cash conversion. The initial bridge provides limited flexibility for any further weak quarters.
Execution continues to pose key risks. If the mainframe recovery is softer than expected or software margins come under additional strain, meeting the cash goal may become more challenging.
The revenue shortfall had been widely anticipated. The new challenge is to see if cost reductions can support the cash commitment, which remains unchanged.
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