IBM Chairman and CEO Arvind Krishna attributed the company’s expected weaker second-quarter performance to an unexpected shift in customer spending to secure supply-constrained hardware for AI infrastructure, which includes servers, storage and memory, which affected its software and infrastructure businesses.

The company’s shares fell more than 26% to $213.22 following the update, their biggest intraday loss in 58 years, Bloomberg reported.

IBM said preliminary second-quarter revenue was $17.2 billion, missing analysts’ expectations of $17.9 billion. Revenue at its infrastructure division fell 7%, while preliminary diluted earnings fell 2% to $2.27 a share. The company said it is still finalizing its financial statements, with official quarterly results due next week and subject to minor revisions.

Krishna said consumer spending priorities changed rapidly in the last week of June.

“In the last few weeks of June, we saw clients shift their quarterly capital expenditures toward server, storage and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. This dynamic impacted client purchasing patterns. While we anticipated some supply chain-related impact in our expectations, we did not expect capex restatements.”

Acknowledging execution lapses, Krishna said, “These conditions require our teams to execute perfectly, and we failed this quarter. We didn’t adapt and move fast enough, and numerous large deals failed to close on our expected timelines, which drove most of our shortfalls.”

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The biggest hit has been to IBM’s mainframe business. The decline was larger than expected, as sales of IBM Z systems and related transaction-processing software fell short of estimates, although the company anticipated moderation in infrastructure revenue after the record launch of its z17 mainframe.

IBM also cited rapidly evolving cybersecurity concerns across industries, which distracted customers and delayed technology purchase decisions during the quarter.

Despite the disappointing quarter, IBM highlighted areas of resilience. Red Hat’s revenue grew 11%, recently acquired businesses such as HashiCorp and Confluent performed strongly, and its distributed infrastructure business posted a record 37% growth, supported by strong demand for power servers and storage systems. Consulting signatures led by generative AI projects also remained healthy.

Looking ahead, IBM said it is accelerating initiatives to improve implementation while continuing to invest aggressively in AI and quantum computing. The company recently launched Lightwell, a new AI-powered cybersecurity platform, and reaffirmed plans to build a large-scale fault-tolerant quantum computer by 2029.

“Lightwell is a $5 billion commitment backed by new frontier AI capabilities and a global force of more than 20,000 engineers. Early adopters include institutions such as Bank of America, BNY, Citi, Goldman Sachs, JPMorganChase, Mastercard, Morgan Stanley and more,” he said.