The Sad Fate of Old Tech Kings, Toppled by New Players

The software industry is increasingly being displaced by the emergence of artificial intelligence technology. This shift is also being felt by tech giant IBM. IBM revealed a change in spending priorities from software to data centre infrastructure. Unfortunately, the American technology giant failed to anticipate this. “In the last few weeks of June, we saw quarterly capital expenditure shift from server purchases, storage, and memory funds to securing infrastructure with limited supply ahead of price increases,” said IBM CEO Arvind Krishna in a letter to investors. “Although we anticipated some supply chain-related impacts, we could not anticipate the magnitude of the shift in capital spending priorities,” he added. Krishna also disclosed the company’s weakness lies in its mainframe business, the unit that sells high-performance computers and software. Additionally, IBM forecast revenue would only increase slightly by 1% to US$17.2 billion in the second quarter. This estimate is lower than analysts’ expectations of US$17.86 billion. For earnings per share, the company estimated US$2.93 compared to analysts’ forecasts of US$3.02. “This is a bad moment for IBM and software stocks. The big question is how long this shift to infrastructure and cybersecurity will last,” said Chris Beauchamp, chief market analyst at IG Group. “This situation might still be tolerable for the next few months, but if it continues longer than that, serious questions will re-emerge regarding software stocks,” he stated. IBM is also expected to lose US$70 billion from its market value of US$272.78 billion if the losses continue. Shares of other software giants such as Microsoft, ServiceNow, Salesforce, and Intuit each recorded declines between 2% and 5%.