IBM shares fall after preliminary earnings miss estimates

IBM shares fell more than 17% in premarket trading on Tuesday after the technology company released preliminary second-quarter results below Wall Street expectations. The hardware, software and consulting provider reported adjusted earnings of $2.93 a share on revenue of $17.2 billion, compared with analyst estimates of $3.01 a share and $17.86 billion in revenue, according to FactSet.

The shortfall puts pressure on a company whose results are watched by investors for signals on enterprise technology budgets, particularly across software, infrastructure and consulting. IBM Chief Executive Arvind Krishna attributed the weaker outcome to client spending shifts late in the quarter, according to a letter to investors.

Client spending shifted late in June

Krishna said IBM saw customers redirect quarterly capital expenditure in the final weeks of June toward servers, storage and memory purchases. He said clients were seeking to secure infrastructure that was constrained by supply conditions ahead of anticipated price increases.

Capital expenditure, or capex, refers to corporate spending on assets such as equipment and technology infrastructure. When customers allocate that spending to hardware purchases, other technology commitments can be delayed or resized. Krishna said the shift weighed on IBM’s software and infrastructure business and was larger than the company had expected.

According to Krishna, IBM had already allowed for some impact tied to supply-chain conditions in its expectations. The scale of customers’ budget reprioritization, however, was not anticipated by management.

Large deals missed expected timing

Krishna also told investors that IBM did not respond quickly enough to the change in spending patterns. He said several large transactions did not close when the company had expected them to, which he described as the main driver of the shortfall.

The preliminary figures showed both earnings and revenue below consensus estimates compiled by FactSet. IBM’s adjusted profit was 8 cents a share short of expectations, while revenue came in $660 million below the analyst estimate cited by FactSet.

The company’s update arrived before the formal completion of its second-quarter reporting process. Preliminary results can give investors an early indication of operating performance, but companies may provide fuller detail on segment results, margins, cash flow and outlook when they issue complete quarterly reports.

IBM operates across hardware, software and consulting, and its results can be affected by the timing of large enterprise contracts. Deals involving corporate technology infrastructure often depend on customer budget cycles, procurement approvals and the availability of equipment or related components.

The share-price move reflected investor reaction to both the earnings miss and management’s explanation that spending shifted in the closing weeks of the quarter. IBM did not provide additional figures in the investor letter cited by CNBC beyond the preliminary earnings and revenue numbers reported Tuesday.

This story draws on original reporting from CNBC.