INTERNATIONAL BUSINESS MACHINES CORP
For the period ended Jun 30, 2026. Filed Jul 23, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2026 · Filed Jul 23, 2026
IBM$245.00-0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-03-31; filed 2026-04-23.
0000051143-26-000038
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial ConditionCurrent report: 10-Q
Period ended 2026-06-30; filed 2026-07-23.
0000051143-26-000078
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial ConditionThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
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Tables are not compared: 30 previous and 51 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (51)
Current report
Total revenue grew 1.1 percent both as reported and adjusted for currency compared to the prior-year period. Software and Infrastructure revenue results were below our expectations, while Consulting was in-line. The Software shortfall was limited to a capital-sensitive area of the portfolio. While we are navigating near-term client buying dynamics that we will work through, about 80 percent of our software revenue is recurring in nature and delivered healthy growth in the quarter, reflecting the demand for our offerings and giving us confidence in our growth opportunity. Since the z17 was introduced in June 2025, this has been the strongest start to a mainframe program in our history, and we expected declines year to year in revenue. However, the results in the quarter were worse than our expectations, driven by a shortfall in our IBM Z performance and the associated software stack, primarily in Transaction Processing. In the final weeks of June, we saw a shift in client spending priorities that resulted in numerous large deals failing to close within the expected timelines, driving the majority of the shortfall. Many clients redirected spending toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. We saw this dynamic firsthand, with Distributed Infrastructure revenue increasing 37 percent, our strongest quarter on record.
Current report
Software delivered revenue growth of 5.1 percent as reported (4.6 percent adjusted for currency). Consulting revenue was flat as reported and increased 1.1 percent adjusted for currency. Infrastructure revenue decreased 7.4 percent both as reported and adjusted for currency.
Current report
Total expense and other (income) increased 0.7 percent in the second quarter of 2026 compared to the second quarter of 2025 driven by our investments in portfolio innovation, and higher amortization of acquired intangible assets and acquisition-related charges, partially offset by savings from productivity actions and the effects of currency. Total operating (non-GAAP) expense and other (income) decreased 1.5 percent year to year, driven by savings from productivity actions and the effects of currency, partially offset by our investments in portfolio innovations.
Current report
Pre-tax income from continuing operations of $2.5 billion decreased 4.5 percent compared to the prior-year period and pre-tax margin declined 0.9 points year to year to 14.4 percent. Software and Consulting segment profit margins improved year to year, while Infrastructure profit margin was impacted by the IBM Z shortfall and cycle dynamics. The continuing operations provision for income taxes was $0.3 billion in the second quarter of 2026, compared to $0.4 billion in the second quarter of 2025. Net income from continuing operations was essentially flat year to year. Net income from continuing operations margin of 12.6 percent, was down 0.3 points year to year.
Current report
Cash provided by operating activities was $2.6 billion in the second quarter of 2026, an increase of $0.9 billion compared to the second quarter of 2025, which includes a decrease in cash used by financing receivables of $1.2 billion. Free cash flow was $2.5 billion, a decrease of $0.3 billion versus the prior-year period. Net cash used in investing activities was $0.5 billion, compared with net cash provided by investing activities of $1.7 billion in the prior-year period. Net cash used in financing activities of $5.7 billion increased $2.9 billion compared to the second quarter of 2025.
Current report
Financial Results Summary — Six Months Ended June 30:
Current report
Financial Performance Summary —Six Months Ended June 30:
Current report
In the first six months of 2026, we reported $33.1 billion in revenue, net income from continuing operations of $3.4 billion, and operating (non-GAAP) earnings of $4.6 billion. Diluted earnings per share from continuing operations was $3.55 as reported and $4.84 on an operating (non-GAAP) basis. We generated $7.8 billion in cash from operations and $4.8 billion in free cash flow, and delivered shareholder returns of $3.2 billion in dividends. Our year-to-date performance was impacted by the dynamics we faced in the second quarter of 2026; however, it also reflects a focus on business fundamentals as we accelerate our productivity initiatives while continuing to invest in growth. We continue to maintain a strong liquidity position and a solid investment grade balance sheet which enables us to invest in our business and return value to shareholders through dividends.
Current report
From a geographic perspective, Americas revenue increased 3.9 percent year to year as reported (3.2 percent adjusted for currency). EMEA increased 9.1 percent (3.6 percent adjusted for currency). Asia Pacific increased 0.7 percent (3.6 percent adjusted for currency).
Current report
Gross margin of 57.0 percent and operating (non-GAAP) gross margin of 58.6 percent were essentially flat compared to the prior-year period and were impacted by the second quarter 2026 revenue shortfall and mix dynamics.
Current report
Operating (non-GAAP) pre-tax income from continuing operations of$5.4 billion increased 9.8 percent compared to the prior-year period and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.7 points to 16.4 percent. The operating (non-GAAP) provision for income taxes in the first six months of 2026 and the first six months of 2025 was $0.8 billion. Operating (non-GAAP) income from continuing operations of$4.6 billion increased 10.7 percent and the operating (non-GAAP) income margin from continuing operations of 13.9 percent increased 0.7 points year to year. The year-to-year performance is primarily driven by the same factors as described above.
Current report
Diluted earnings per share from continuing operations of$3.55 in the first six months of 2025 increased 3.5 percent and operating (non-GAAP) diluted earningsper share of $4.84 increased 10.0 percent compared to the first six months of 2025.
Current report
Second Quarter in Review
Current report
For the second quarter of 2026, Software revenue of $7,761 million increased 5.1 percent as reported (4.6 percent adjusted for currency) compared to the prior-year period. Although the revenue performance was below our expectations, recent acquisitions delivered a strong contribution to Software revenue growth. Our recurring revenue base, which is approximately 80 percent of Software revenue, delivered healthy growth, reflecting demand for our offerings. The remaining 20 percent of Software revenue is transactional in nature, and is predominantly related to the incumbency with IBM Z and the associated enterprise license agreements (ELAs) with Transaction Processing and other software products in Data and Automation. ELAs are highly valuable to IBM because they establish long-term, strategic client commitments that expand adoption across our software products, creating a multiplier effect. Transactional revenue declined in the period given the shift in customer buying patterns late in the quarter.
Current report
Hybrid Cloud (Red Hat) revenue increased 11.2 percent as reported (10.9 percent adjusted for currency), driven by subscriptions and stabilization in consumption-based services. OpenShift annual recurring revenue is now over $2 billion. Automation revenue increased 3.6 percent as reported (3.1 percent adjusted for currency). Data revenue increased 18.9 percent as reported (18.4 percent adjusted for currency) reflecting the contribution from recent acquisitions, primarily Confluent. Transaction Processing revenue decreased 8.1 percent as reported (8.6 percent adjusted for currency), reflecting the shortfall in our IBM Z performance.
Current report
Software revenue of $14,813 million increased 7.9 percent as reported (6.1 percent adjusted for currency). Hybrid Cloud and Data both grew at double-digit rates, Automation expanded at a mid-single digit rate and Transaction Processing declined. The revenue performance in Software for the first six months of 2026 reflects the contribution from Hybrid Cloud and recent acquisitions, including Confluent and HashiCorp, and the investment in innovating our organic software; partially offset by the transactional dynamics that occurred in the second-quarter 2026.
Current report
For the second quarter of 2026, Software gross profit margin decreased 1.3 points to 82.6 percent, on a year-to-year basis. Segment profit of $2,502 million increased 8.9 percent and segment profit margin of 32.2 percent increased 1.1 points compared to the prior-year period.
Current report
For the first six months of 2026, Software gross profit margin decreased 1.1 points to 82.7 percent on a year-to-year basis. Segment profit of $4,601 million increased 11.1 percent and segment profit margin of 31.1 percent increased 0.9 points compared to the prior-year period.
Current report
The Software gross profit margin decline for the second quarter and the first six months of 2026 was primarily driven by investments in our portfolio innovation, and product mix. Segment profit and profit margin performance for both periods reflect the benefits of our productivity actions, partially offset by investments in the business.
Current report
For the second quarter of 2026, Consulting revenue of $5,327 million was essentially flat as reported (increased 1.1 percent adjusted for currency) on a year-to-year basis. Strategy and Technology revenue increased 0.5 percent as reported (1.3 percent adjusted for currency), and Intelligent Operations revenue was flat as reported (increased 0.8 percent adjusted for currency), compared to the prior-year period. The revenue performance in Consulting was driven by demand for application modernization, data transformation and cybersecurity services as clients balance the need to increase productivity through AI with the need to strengthen resiliency and manage risk.
Current report
For the first six months of 2026, Consulting revenue of $10,599 million increased 2.1 percent as reported (1.0 percent adjusted for currency) on a year-to-year basis. The revenue performance for Consulting and the lines of business was primarily driven by the same factors as described above for the second quarter.
Current report
In the second quarter of 2026, Consulting gross profit margin of 28.9 percent increased 1.4 points on a year-to-year basis. Segment profit of $647 million increased 15.1 percent and segment profit margin of 12.1 percent increased 1.6 points compared to the prior-year period.
Current report
For the first six months of 2026, Consulting gross profit margin of 28.2 percent increased 0.8 points on a year-to-year basis. Segment profit of $1,205 million increased 7.5 percent and segment profit margin of 11.4 percent increased 0.6 points compared to the prior-year period.
Current report
Consulting gross profit, segment profit and respective margin performance in the second quarter and first six months of 2026 primarily reflect the benefits of the productivity actions we have taken, partially offset by investments in innovation.
Current report
For the second quarter of 2026 as compared to the prior-year period, Infrastructure revenue of $3,835 million decreased 7.4 percent, with a decline in Hybrid Infrastructure of 10.3 percent as reported (10.1 percent adjusted for currency) and a decline in Infrastructure Support of 0.8 percent as reported (1.1 percent adjusted for currency). Within Hybrid Infrastructure, IBM Z decreased 42.0 percent as reported (41.8 percent adjusted for currency) reflecting performance below expectations in the current period, and also comparing to a historically strong prior-year z17 launch. Distributed Infrastructure revenue increased 37.3 percent as reported (37.5 percent adjusted for currency), with double-digit growth in both Storage and Power. Storage revenue growth reflects our differentiated offerings including those with AI-enabled capabilities that help clients scale and manage data for AI. Power revenue growth was driven by continued demand for Power11 with its value proposition of resiliency, performance and Linux modernization.
Current report
For the first six months of 2026, Infrastructure revenue of $7,161 million increased 1.9 percent as reported (0.5 percent adjusted for currency) compared to the prior-year period, reflecting growth in Distributed Infrastructure, led by double-digit growth in Power and Storage. IBM Z and Infrastructure Support revenue performance reflects product cycle dynamics. IBM Z revenue was impacted by the shortfall in the second quarter, but z17 remains our strongest program on record as clients continue to invest in the platform to modernize mission-critical workloads.
Current report
For the second quarter of 2026, Infrastructure gross profit margin of 58.4 percent decreased 3.1 points on a year-to-year basis. Infrastructure segment profit of $835 million decreased 13.4 percent and segment profit margin of 21.8 percent decreased 1.5 points compared to the prior-year period.
Current report
Infrastructure gross profit, segment profit and respective margin performance in the second quarter of 2026 was driven by the IBM Z shortfall and associated product mix, partially offset by productivity actions we have taken.
Current report
For the first six months of 2026, gross profit margin of 57.7 percent was essentially flat on a year-to-year basis. Infrastructure segment profit of $1,360 million increased 12.1 percent and segment profit margin of 19.0 percent increased 1.7 points compared to the prior-year period.
Current report
Infrastructure gross profit, segment profit and respective margin performance in the first six months of 2026 primarily reflect productivity actions we have taken, partially offset by product mix.
Current report
Americas revenue of $8,417 million decreased 0.5 percent as reported and 1.0 percent adjusted for currency. The U.S. decreased 2.4 percent as reported. Canada decreased 17.1 percent as reported and 16.9 percent adjusted for currency. Latin America increased 30.2 percent as reported and 24.9 percent adjusted for currency, with Brazil increasing 47.4 percent as reported and 39.8 percent adjusted for currency.
Current report
Asia Pacific revenue of $3,112 million increased 0.3 percent as reported and 5.2 percent adjusted for currency. India increased 12.8 percent as reported and 24.7 percent adjusted for currency. Australia increased 9.4 percent as reported, but decreased 0.5 percent adjusted for currency. Japan decreased 9.7 percent as reported and was flat adjusted for currency.
Current report
Geographic revenue performance for the six months ended June 30, 2026 compared to the prior-year period:
Current report
In EMEA, total revenue of $10,876 million increased 9.1 percent as reported and 3.6 percent adjusted for currency. The U.K. increased 15.6 percent as reported and 12.0 percent adjusted for currency. France increased 6.6 percent as reported and was flat adjusted for currency. Germany and Italy increased 4.8 percent and 3.3 percent, respectively, as reported, but decreased 1.2 percent and 2.8 percent, respectively, adjusted for currency. The Middle East and Africa region increased 19.6 percent as reported and 17.4 percent adjusted for currency and represents less than 3 percent of IBM total revenue.
Current report
(1)2026 includes $52 million for awards in connection with acquisitions (including a non-operating adjustment in acquisition related charges of $5 million). 2025 includes $41 million for awards in connection with acquisitions (including a non-operating adjustment in acquisition-related charges of $17 million).
Current report
(1)2026 includes $69 million for awards in connection with acquisitions (including a non-operating adjustment in acquisition related charges of $6 million). 2025 includes $45 million for awards in connection with acquisitions (including a non-operating adjustment in acquisition-related charges of $17 million).
Current report
•Higher amortization of acquired intangible assets and acquisition-related charges (2 points).
Current report
Total SG&A expense increased 1.6 percent in the first six months of 2026 versus the prior-year period driven primarily by the following factors:
Current report
(1) Includes realized and unrealized net (gains)/losses from equity investments.
Current report
Total other (income) and expense was income of $185 million in the second quarter of 2026, an increase of $146 million compared to the prior-year period. The year-to-year change was primarily driven by:
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Previous report
Macroeconomic Environment:
Previous report
In the first three months of 2026, movements in global currencies continued to impact our reported year-to-year revenue and profit. We execute hedging programs which defer, but do not eliminate, the impact of currency. The (gains)/losses from these hedging programs are reflected primarily in other (income) and expense. Refer to “Currency Rate Fluctuations” on page 53 for additional information.
Previous report
First Quarter in Review
Previous report
Software revenue of $7,052 million increased 11.3 percent as reported (7.9 percent adjusted for currency) in the first quarter of 2026 compared to the prior-year period, with growth in all lines of business. This revenue performance reflects the diversity of our portfolio, our ongoing generative AI innovation, and the continued shift to higher growth end markets.
Previous report
Hybrid Cloud (Red Hat) revenue increased 12.9 percent as reported (10.0 percent adjusted for currency) in the first quarter, reflecting accelerated growth of approximately two points compared to fourth-quarter 2025, primarily driven by the stabilization of our consumption-based services revenue growth. OpenShift had strong year-to-year growth in the first quarter and now represents a $2 billion annual recurring revenue business. Automation revenue grew 9.9 percent as reported (6.7 percent adjusted for currency). This includes revenue growth contribution from our HashiCorp acquisition which closed in February 2025. Data revenue grew 19.2 percent as reported (15.9 percent adjusted for currency) reflecting demand for our generative AI products, strength in our strategic partnerships, and inorganic contribution from our acquisitions, including DataStax and Confluent which closed in mid-March 2026. Transaction Processing revenue increased 5.7 percent as reported (1.7 percent adjusted for currency), reflecting growth due to our strong IBM z17 program.
Previous report
Software gross profit margin decreased 0.8 points to 82.8 percent in the first quarter of 2026 compared to the prior-year period, reflecting our investments in portfolio innovation.
Previous report
Segment profit of $2,099 million increased 13.7 percent and segment profit margin of 29.8 percent increased 0.6 points compared to the prior-year period, reflecting the benefits of our productivity actions, contributions from revenue growth and mix, partially offset by organic and inorganic investments in portfolio innovation.
Previous report
Consulting revenue of $5,272 million increased 4.0 percent as reported and 0.9 percent adjusted for currency on a year-to-year basis. We had revenue growth across the portfolio reflecting momentum in the business as client demand continues to shift towards enterprise-wide transformation. Strategy and Technology revenue increased 4.1 percent as reported (0.9 percent adjusted for currency) and Intelligent Operations revenue increased 4.0 percent as reported (0.8 percent adjusted for currency). The revenue performance in Consulting reflects our differentiated, asset-led delivery model which continues to drive productivity and speed to value, combining our deep domain expertise with software, automation, and reusable assets to help clients deploy AI securely and at scale.
Previous report
In the first quarter of 2026, Consulting gross profit margin of 27.5 percent increased 0.2 points on a year-to-year basis. Segment profit of $558 million decreased 0.1 percent and segment profit margin of 10.6 percent decreased 0.4 points year to year.
Previous report
Consulting segment profit and profit margin performance in the first quarter of 2026 compared to the prior-year period declined modestly as productivity gains were offset by investments in the business and currency headwinds reflecting our geographic mix of the business.
Previous report
Infrastructure revenue of $3,326 million increased 15.3 percent as reported and 11.7 percent adjusted for currency in the first quarter of 2026 compared to the prior-year period, with Hybrid Infrastructure increasing 28.1 percent as reported (24.8 percent adjusted for currency) and Infrastructure Support decreasing 1.8 percent as reported (5.7 percent adjusted for currency). Within Hybrid Infrastructure, IBM Z increased 50.9 percent as reported (48.3 percent adjusted for currency) in the first quarter, with z17 continuing to outperform prior programs. Clients are investing in IBM Z as they modernize mission-critical workloads, driven by requirements for resiliency, security and compliance, while enabling new AI capabilities on the platform. Distributed Infrastructure revenue increased 16.7 percent as reported (13.1 percent adjusted for currency), with growth in both Power and Storage. Power revenue growth was driven by demand for Power11, with its resiliency and performance advantages supporting data-intensive workloads. Revenue growth in Storage reflects strong adoption of our new Flash offerings introduced in the first-quarter 2026, which incorporate industry-leading agentic AI capabilities.
Previous report
Infrastructure gross profit margin of 56.9 percent increased 4.1 points in the first quarter of 2026 compared to the prior-year period. Infrastructure segment profit of $524 million increased 111.7 percent and segment profit margin of 15.8 percent increased 7.2 points compared to the prior-year period.
Previous report
Infrastructure gross profit, segment profit and the respective margin expansion for the first quarter of 2026 reflect the productivity actions we have taken and the growth and mix of revenue, partially offset by our ongoing investments in product innovation.
Previous report
The continuing operations provision for income taxes was $172 million in the first quarter of 2026, compared to $103 million in the first quarter of 2025. The operating (non-GAAP) provision for income taxes was $308 million in the first quarter of 2026, compared to $221 million in the first quarter of 2025.
Previous report
We had a strong start to 2026. Our first-quarter performance reflects the durability of our portfolio and the continued execution of our focused strategy around hybrid cloud and AI, giving us confidence in our ability to continue to deliver long-term growth aligned with our financial model.
Previous report
Segment profit increased 72.6 percent to $118 million and segment profit margin increased 18.0 points to 53.8 percent, respectively, compared to the prior-year period. The increase in segment profit was driven by higher unallocated reserve requirements in the prior year as a result of economic conditions and year-to-year revenue growth as described above.
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FOR THE THREE MONTHS ENDED MARCH 31, 2026
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FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026
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(1)Year-to-year revenue growth of 6 percent adjusted for currency.
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(1)Year-to-year revenue growth of 1 percent adjusted for currency.
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The following table provides the company’s operating (non-GAAP) earnings for the first quarter of 2026 and 2025.
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The following table provides the company’s operating (non-GAAP) earnings for the second quarter of 2026 and 2025.
Previous wording
In the first quarter of 2026, we reported $15.9 billion in revenue, income from continuing operations of $1.2 billion, and operating (non-GAAP) earnings of $1.8 billion. Diluted earnings per share from continuing operations was $1.28 as reported and $1.91 on an operating (non-GAAP) basis. We generated $5.2 billion in cash from operations and $2.2 billion in free cash flow. We returned $1.6 billion to shareholders in dividends and invested in the acquisition of Confluent, Inc. (Confluent). Our first-quarter performance reinforces the strategic choices we have made over the last several years to advance IBM as a software-led Hybrid Cloud and AI platform company. With our focus on the fundamentals of our business, we continue to maintain a strong liquidity position and solid investment grade balance sheet which enables us to invest in our business and return value to shareholders through dividends.
Current wording
In the second quarter of 2026, we reported $17.2 billion in revenue, income from continuing operations of $2.2 billion, and operating (non-GAAP) earnings of $2.8 billion. Diluted earnings per share from continuing operations was $2.27 as reported and $2.93 on an operating (non-GAAP) basis. We generated $2.6 billion in cash from operations and $2.5 billion in free cash flow, and returned $1.6 billion to shareholders in dividends. While our second-quarter performance was below our expectations, we have conviction in the strength of our portfolio and the strategic direction of our business. We believe our strategic investments over the past several years continue to strengthen IBM's position as a software-led Hybrid Cloud and AI platform company and we continue to build leadership in quantum.
Previous wording
From a geographic perspective, Americas revenue increased 9.1 percent as reported (8.2 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 15.2 percent as reported (5.4 percent adjusted for currency). Asia Pacific increased 1.1 percent as reported (1.7 percent adjusted for currency).
Current wording
From a geographic perspective, Americas revenue decreased 0.5 percent as reported (1.0 percent adjusted for currency). Europe/Middle East/Africa (EMEA) increased 4.1 percent as reported (2.1 percent adjusted for currency). Asia Pacific increased 0.3 percent as reported (5.2 percent adjusted for currency).
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Gross margin of 56.2 percent increased 1.0 point year to year with margin expansion driven primarily by productivity actions, revenue growth and portfolio mix. Operating (non-GAAP) gross margin of 57.7 percent increased 1.1 points compared to the prior-year period due to the same dynamics.
Current wording
Gross margin of 57.7 percent decreased 1.0 point year to year driven by our revenue shortfall and mix, partially offset by productivity actions. Operating (non-GAAP) gross margin of 59.4 percent decreased 0.7 points compared to the prior-year period due to the same dynamics.
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Operating (non-GAAP) pre-tax income from continuing operations of $2.1 billion increased 22.5 percent compared to the first quarter of 2025 and the operating (non-GAAP) pre-tax margin from continuing operations increased 1.4 points to 13.4 percent primarily driven by the factors described above. The operating (non-GAAP) provision for income taxes was $0.3 billion in the first quarter of 2026, compared to $0.2 billion in the first quarter of 2025. Operating (non-GAAP) net income from continuing operations of $1.8 billion increased 20.1 percent and the operating (non-GAAP) net income margin from continuing operations of 11.4 percent increased 1.0 point year to year.
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Operating (non-GAAP) pre-tax income from continuing operations of $3.3 billion increased 2.9 percent compared to the second quarter of 2025 and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.3 points to 19.2 percent. The operating (non-GAAP) provision for income taxes was $0.5 billion in both the second quarter of 2026 and the second quarter of 2025. Operating (non-GAAP) net income from continuing operations of $2.8 billion increased 5.3 percent and the operating (non-GAAP) net income margin from continuing operations of 16.3 percent increased 0.6 point year to year.
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Diluted earnings per share from continuing operations of $1.28 increased 14.3 percent and operating (non-GAAP) diluted earnings per share of $1.91 increased 19.4 percent compared to the first quarter of 2025.
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Diluted earnings per share from continuing operations of $2.27 decreased 1.7 percent and operating (non-GAAP) diluted earnings per share of $2.93 increased 4.6 percent compared to the second quarter of 2025.
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Total revenue grew 9.5 percent as reported and 6.1 percent adjusted for currency compared to the prior-year period. Software delivered revenue growth of 11.3 percent as reported (7.9 percent adjusted for currency). Consulting revenue increased 4.0 percent as reported (0.9 percent adjusted for currency). Infrastructure revenue increased 15.3 percent as reported (11.7 percent adjusted for currency).
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Total revenue grew 5.0 percent as reported and 3.4 percent adjusted for currency compared to the prior-year period. Software grew 7.9 percent as reported (6.1 percent adjusted for currency). Consulting revenue increased 2.1 percent as reported (1.0 percent adjusted for currency). Infrastructure revenue increased 1.9 percent as reported (0.5 percent adjusted for currency).
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Total expense and other (income) increased 10.0 percent in the first quarter of 2026 compared to the first quarter of 2025 driven by our organic and inorganic investments in portfolio innovation and the effects of currency, partially offset by savings from productivity actions. Total operating (non-GAAP) expense and other (income) increased 8.7 percent year to year, driven primarily by the same factors.
Current wording
Total expense and other (income) increased 5.2 percent in the first six months of 2026 versus the prior-year period primarily driven by our investments in portfolio innovation, and higher amortization of acquired intangible assets and acquisition-related charges, partially offset by savings from productivity actions. Total operating (non-GAAP) expense and other (income) increased 3.4 percent year to year, driven primarily by the same factors excluding the higher amortization of acquired intangible assets and acquisition-related charges.
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Pre-tax income from continuing operations was $1.4 billion in the first quarter of 2025 compared to $1.2 billion in the prior-year period and pre-tax margin was up 0.8 points year to year to 8.7 percent. The continuing operations provision for income taxes was $0.2 billion in the first quarter of 2026, compared to $0.1 billion in the first quarter of 2025. Net income from continuing operations was $1.2 billion in the current period compared to $1.1 billion in the prior-year period and the net income from continuing operations margin of 7.6 percent was up 0.4 points year to year. The year-to-year performance was primarily driven by revenue growth, portfolio mix and increased productivity, partially offset by our organic and inorganic investments in portfolio innovation.
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Pre-tax income from continuing operations of $3.9 billion increased 3.0 percent and pre-tax margin was 11.7 percent, a decline of 0.2 points as compared to the first six months of 2025. The continuing operations provision for income taxes in the first six months of 2026 and the first six months of 2025 was $0.5 billion. Net income from continuing operations of $3.4 billion increased 4.1 percent and the net income from continuing operations margin was 10.2 percent, down 0.1 points year to year. The year-to-year performance was primarily driven by first-half revenue growth and increased productivity, partially offset by our investments in portfolio innovation.
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At March 31, 2026, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at March 31, 2026 of $11.8 billion decreased $2.6 billion from December 31, 2025 and debt of $66.4 billion at March 31, 2026 increased $5.1 billion. The company continues to make investments in innovation both organically and through acquisitions, including the Confluent acquisition in first-quarter 2026.
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At June 30, 2026, the balance sheet remained strong with financial flexibility to support and invest in the business. Cash and cash equivalents, restricted cash and marketable securities at June 30, 2026 of $8.2 billion decreased $6.3 billion from December 31, 2025 and debt of $62.0 billion at June 30, 2026 increased $0.7 billion. The company continues to make investments in innovation both organically and through acquisitions, including the Confluent acquisition in first-quarter 2026.
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Total assets increased $4.3 billion ($5.1 billion adjusted for currency) from December 31, 2025 primarily driven by the Confluent acquisition. Total liabilities increased $4.0 billion ($4.9 billion adjusted for currency) from December 31, 2025. Total equity of $33.1 billion increased $0.3 billion from December 31, 2025.
Current wording
Total assets increased $0.2 billion ($1.3 billion adjusted for currency) from December 31, 2025. Total liabilities decreased $1.6 billion ($0.5 billion adjusted for currency) from December 31, 2025. Total equity of $34.5 billion increased $1.8 billion from December 31, 2025.
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Cash provided by operating activities was $5.2 billion in the first three months of 2026, an increase of$0.8 billion compared to the first three months of 2025. Free cash flow was $2.2 billion, an increase of $0.3 billion versus the prior-year period. Refer to page 55 for additional information on free cash flow. Net cash used in investing activities of $10.5 billion, which includes our investment in the acquisition of Confluent, decreased $2.5 billion compared to the prior-year period. Financing activities were a net source of cash of $2.7 billion, a decrease of$2.7 billion compared to theprior-year period.
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Cash provided by operating activities was $7.8 billion in the firstsix months of 2026, an increase of$1.7 billion compared to the first six months of 2025, which includes an increase in cash provided by financing receivables of $1.7 billion. Free cash flow of $4.8 billion was essentially flat versus the prior-year period. Refer to page 72 for additional information on free cash flow. Net cash used in investing activities of $11.0 billion, which includes our investment in the acquisition of Confluent, decreased $0.3 billion compared to the prior-year period. Financing activities were a net use of cash of $3.0 billion in the firstsix months of 2026 compared to a net source of cash of $2.6 billion in thefirst six months of 2025.
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The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the first three months of 2026 versus the first three months of 2025 reportable segments results.
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The following tables present each reportable segment’s revenue and gross margin results, followed by an analysis of the second quarter and the first six months of 2026 versus the second quarter and first six months of 2025 reportable segments results.
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Revenue performance by line of business in the first quarter compared to the prior-year period was as follows:
Current wording
Revenue performance by line of business in the second quarter compared to the prior-year period was as follows:
Previous wording
Across Software, our annual recurring revenue (ARR) was solid at $24.6 billion, which increased approximately $3 billion as reported year to year. ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment, and is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. The first-quarter 2026 recurring revenue metric includes annualized Confluent recurring revenue since the acquisition date of March 17, 2026. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.
Current wording
Across Software, our annual recurring revenue (ARR) was solid at $24.6 billion, which increased approximately $2 billion as reported year to year. This increase reflects the acquisition of Confluent and growth across other areas of our recurring revenue base. ARR is a key performance metric management uses to assess the health and growth trajectory of our Software segment, and is calculated by using the current quarter’s recurring revenue and then multiplying that value by four. This value includes the following consumption models: (1) software subscription agreements, including committed term licenses, (2) as-a-service arrangements such as SaaS and PaaS, and (3) maintenance and support contracts. ARR should be viewed independently of software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.
Previous wording
Consulting signings increased 8.5 percent as reported and 6.0 percent adjusted for currency for the three months ended March 31, 2026, compared to the prior-year period. Signings returned to growth in the first-quarter 2026, with strength across our application and data transformation offerings. Our book-to-bill ratio for the trailing twelve-months was 1.04. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period and is a useful indicator of the demand for our business over time. At March 31, 2026, backlog was $31.3 billion.
Current wording
For the three and six months ended June 30, 2026, Consulting signings increased 5.0 percent as reported (5.9 percent adjusted for currency) and 6.8 percent as reported (5.9 percent adjusted for currency), respectively, compared to the prior-year period. This was the second consecutive quarter of solid signings growth reflecting continued client investment in business transformation initiatives. Our book-to-bill ratio for the trailing twelve-months was approximately 1.05. Book-to-bill represents the ratio of IBM Consulting signings to its revenue over the same period. The metric is a useful indicator of the demand of our business over time. At June 30, 2026, backlog was $30.8 billion.
Previous wording
Signings are management’s initial estimate of the value of a client’s commitment under a services contract. The calculation used by management involves estimates and judgments to gauge the extent of a client’s commitment, including the type and duration of the agreement and the presence of termination charges or wind-down costs. Backlog reflects the estimated remaining value of overall work to be recognized as revenue under services contracts, and it is calculated as the total reported signings less already recognized revenue and less any backlog adjustments.
Current wording
Signings are management’s initial estimate of the value of a client’s commitment under a services contract within IBM Consulting. There are no third-party standards or requirements governing the calculation of signings. The calculation used by management involves estimates and judgments to gauge the extent of a client’s commitment, including the type and duration of the agreement, and the presence of termination charges or wind-down costs.
Previous wording
Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value. Total signings can vary over time due to a variety of factors including, but not limited to, the timing of signing a small number of larger contracts. Signings associated with an acquisition will be recognized on a prospective basis. Backlog estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustments for revenue not materialized and adjustments for currency.
Current wording
Contract extensions and increases in scope are treated as signings only to the extent of the incremental new value. Total signings can vary over time due to a variety of factors including, but not limited to, the timing of signing a small number of larger contracts. Signings associated with an acquisition will be recognized on a prospective basis.
Previous wording
Management believes the estimated values of signings and backlog provide an indication of our forward-looking revenue, which are used by management as tools to monitor the performance of the business and are viewed as useful decision-making information for investors. There are no third-party standards or requirements governing the calculation of these measurements. The conversion of signings and backlog into revenue may vary based on the types of services and solutions, contract duration, customer decisions, and other factors, which may include, but are not limited to, the macroeconomic environment or external events.
Current wording
Management believes the estimated values of signings disclosed provide an indication of our forward-looking revenue. Signings are used to monitor the performance of the business and viewed as useful information for management and shareholders. The conversion of signings into revenue may vary based on the types of services and solutions, contract duration, customer decisions, and other factors, which may include, but are not limited to, the macroeconomic environment.
Previous wording
Refer to pages 56 through 57 for a discussion of Financing’s segment results.
Current wording
Refer to pages 73 through 74 for a discussion of Financing’s segment results.
Previous wording
Geographic revenue performance for the three months ended March 31, 2026:
Current wording
Geographic revenue performance for the three months ended June 30, 2026 compared to the prior-year period:
Previous wording
In EMEA, total revenue of $5,242 million increased 15.2 percent as reported and 5.4 percent adjusted for currency. Italy, France, Germany and the U.K. increased 23.8 percent, 21.7 percent, 18.7 percent and 17.0 percent, respectively, as reported, and 12.3 percent, 10.2 percent, 7.2 percent and 9.7 percent, respectively, adjusted for currency. The Middle East and Africa region increased 15.8 percent as reported and 13.4 percent adjusted for currency and represents less than 3 percent of IBM total revenue.
Current wording
In EMEA, total revenue of $5,633 million increased 4.1 percent as reported and 2.1 percent adjusted for currency. The U.K. increased 14.3 percent as reported and 14.1 percent adjusted for currency. Germany, France and Italy decreased 5.5 percent, 6.0 percent, and 13.4 percent, respectively, as reported, and 7.5 percent, 8.0 percent, and 15.2 percent, respectively, adjusted for currency. The Middle East and Africa region increased 22.9 percent as reported and 20.9 percent adjusted for currency.
Previous wording
Americas revenue of $7,861 million increased 9.1 percent as reported and 8.2 percent adjusted for currency in the first quarter of 2026 compared to the prior-year period. The U.S. increased 7.5 percent year to year. Canada increased 12.5 percent as reported and 7.9 percent adjusted for currency. Latin America increased 14.4 percent as reported and 9.1 percent adjusted for currency, with Brazil increasing 29.3 percent as reported and 22.4 percent adjusted for currency.
Current wording
Americas revenue of $16,278 million increased 3.9 percent as reported and 3.2 percent adjusted for currency. The U.S. increased 2.2 percent as reported. Canada decreased 4.8 percent as reported and 6.6 percent adjusted for currency. Latin America increased 22.5 percent as reported and 17.2 percent adjusted for currency, with Brazil increasing 38.5 percent as reported and 31.2 percent adjusted for currency.
Previous wording
Asia Pacific revenue of $2,814 million increased 1.1 percent as reported and 1.7 percent adjusted for currency. Japan decreased 3.8 percent as reported and 0.7 percent adjusted for currency. Australia and India increased 15.2 percent and 5.2 percent, respectively, as reported, and 3.9 percent and 11.4 percent, respectively, adjusted for currency.
Current wording
Asia Pacific revenue of $5,925 million increased 0.7 percent as reported and 3.6 percent adjusted for currency. Australia and India increased 11.7 percent and 9.1 percent, respectively, as reported, and 1.2 percent and 18.3 percent, respectively, adjusted for currency. Japan decreased 6.9 percent as reported and 0.5 percent adjusted for currency.
Previous wording
Total selling, general and administrative (SG&A) expense increased 4.2 percent in the first quarter of 2026 versus the prior-year period driven primarily by the following factors:
Current wording
Total selling, general and administrative (SG&A) expense decreased 0.9 percent in the second quarter of 2026 versus the prior-year period driven primarily by the following factors:
Previous wording
Expected credit loss expense was a benefit of $2 million in the first quarter of 2026 compared to a provision of $14 million in the prior-year period. The year-to-year change was primarily driven by higher unallocated reserve requirements in the prior year as a result of the economic conditions. Refer to "Receivables and Allowances" section on page 50 for additional information.
Current wording
Expected credit loss expense was a provision of $7 million in the second quarter of 2026 compared to $14 million in the prior-year period. The year-to-year change was primarily driven by lower specific reserve requirements in the current year. Refer to "Receivables and Allowances" section on page 67 for additional information.
Previous wording
•Higher acquisition-related charges and amortization of acquired intangible assets (1 point); partially offset by
Current wording
•Higher amortization of acquired intangible assets and acquisition-related charges (1 point); partially offset by
Previous wording
•Benefits from productivity and the actions taken to transform our operations (2 points).
Current wording
•Benefits from productivity and the actions taken to transform our operations (5 points).
Previous wording
Operating (non-GAAP) SG&A expense increased 3.3 percent year to year primarily driven by the same factors above, excluding the higher acquisition-related charges and amortization of acquired intangible assets.
Current wording
Operating (non-GAAP) SG&A expense increased 0.3 percent year to year primarily driven by the same factors above, excluding the higher amortization of acquired intangible assets and acquisition-related charges.
Previous wording
Research and development (R&D) expense increased 11.4 percent in the first quarter of 2026. The year-to-year increase in R&D expense reflects our organic and inorganic investments to drive innovation in AI, hybrid cloud and quantum, and the effects of currency.
Current wording
Research and development (R&D) expense increased 10.2 percent and 10.8 percent in the second quarter and the first six months of 2026, respectively, driven by continued organic and inorganic investments to drive innovation in AI, hybrid cloud and quantum.
Previous wording
Total intellectual property and custom development income decreased 32.1 percent year to year in the first quarter of 2026. The timing and amount of licensing and sales of IP may vary significantly from period to period depending upon the timing of licensing agreements, economic conditions, industry consolidation and the timing of new patents and know-how development.
Current wording
Total intellectual property and custom development income decreased 22.8 percent and 27.8 percent year to year in the second quarter and first six months of 2026, respectively. The timing and amount of licensing and sales of IP may vary significantly from period to period depending upon the timing of licensing agreements, economic conditions, industry consolidation and the timing of new patents and know-how development.
Previous wording
•Higher net exchange losses (including derivative instruments) of $94 million; and
Current wording
•Lower net exchange losses (including derivative instruments) of $161 million; and
Previous wording
•Higher non-operating retirement-related cost of $74 million. Refer to "Retirement-Related Plans" on page 49 for additional information.
Current wording
•Higher non-operating retirement-related cost of $70 million. Refer to "Retirement-Related Plans" on page 62 for additional information.
Previous wording
Operating (non-GAAP) other (income) and expense was income of $98 million in the first quarter of 2026, a decrease $89 million compared to the prior-year period. The year-to-year change was primarily driven by higher net exchange losses (including derivative instruments).
Current wording
Operating (non-GAAP) other (income) and expense was income of $280 million in the second quarter of 2026, an increase of $215 million compared to the prior-year period. The year-to-year change was primarily driven by the factors described above excluding higher non-operating retirement-related costs.
Previous wording
Total other (income) and expense was income of $1 million in the first quarter of 2026, a decrease of $163 million compared to the prior-year period. The year-to-year change was primarily driven by:
Current wording
Total other (income) and expense was income of $186 million in the first six months of 2026, a decrease of $17 million compared to the prior-year period. The year-to-year change was primarily driven by:
Previous wording
Interest expense of $473 million in the first quarter of 2026 increased $18 million compared to the prior-year period, driven by higher average debt balances. In addition, when external borrowings support the Financing business, interest expense is presented in cost of financing on the Consolidated Income Statement. Interest reported in cost of financing in the first quarter of 2026 was $111 million, a year-to-year increase of $23 million.
Current wording
Interest expense decreased $23 million and $5 million year to year in the second quarter and first six months of 2026, respectively, driven by lower average interest rates partially offset by higher average debt balances. In addition, when external borrowings support the Financing business, interest expense is reported in cost of financing on the Consolidated Income Statement. For the second quarter and first six months of 2026, interest reported in cost of financing was $105 million and $216 million, with year-to-year increases of $19 million and $43 million, respectively.
Previous wording
The following table provides the total pre-tax cost for all retirement-related plans. The operating cost amounts are included in the Consolidated Income Statement within the caption (e.g., Cost, SG&A, R&D) relating to the job function of the plan participants. The non-operating cost amounts are included in other (income) and expense.
Current wording
The following tables provide the total pre-tax cost for all retirement-related plans. The operating cost amounts are included in the Consolidated Income Statement within the caption (e.g., Cost, SG&A, R&D) relating to the job function of the plan participants. The non-operating cost amounts are included in other (income) and expense.
Previous wording
Total pre-tax retirement-related plan cost in the first quarter of 2026 increased by $82 million compared to the first quarter of 2025, primarily driven by an increase in recognized actuarial losses ($46 million) and interest cost ($30 million), partially offset by higher expected return on plan assets ($15 million).
Current wording
Total pre-tax retirement-related plan cost in the second quarter of 2026 increased by $76 million compared to the second quarter of 2025, primarily driven by an increase in recognized actuarial losses ($40 million), interest cost ($12 million), and lower expected return on plan assets ($11 million). Total cost for the first six months of 2026 increased by $159 million compared to the first six months of 2025, primarily driven by an increase in recognized actuarial losses ($86 million), interest cost ($42 million), and amortization of prior service costs/(credits) ($21 million).
Showing the first 40 of 72 pairs. Open the source sections for the rest.
Rearranged current paragraphs (12)
Current report — wording carried from elsewhere
(1)Year-to-year revenue growth of 3 percent adjusted for currency.
Current report — wording carried from elsewhere
The following table provides the company’s operating (non-GAAP) earnings for the first six months of 2026 and 2025.
Current report — wording carried from elsewhere
(1)Refer to the year-to-date "GAAP Reconciliation" on page 66 for additional information.
Current report — wording carried from elsewhere
(1)Includes reductions in revenue for estimated residual value less related unearned income on sales-type leases, which reflects the z17 launch in June 2025. Refer to note A, "Significant Accounting Policies," in the company's 2025 Annual Report for additional information.
Current report — wording carried from elsewhere
Revenue performance in the first six months of 2026 compared to the prior-year period was as follows:
Current report — wording carried from elsewhere
•Lower spending reflecting the benefits from productivity and the actions taken to transform our operations (7 points); partially offset by
Current report — wording carried from elsewhere
•Higher operating expenses from acquired businesses, as a result of our continued investment to drive our hybrid cloud and AI strategy (4 points); and
Current report — wording carried from elsewhere
Operating (non-GAAP) SG&A expense decreased 2.5 percent year to year primarily driven by the same factors above, excluding the higher amortization of acquired intangible assets and acquisition-related charges.
Current report — wording carried from elsewhere
Expected credit loss expense was a provision of $5 million in the first six months of 2026 compared to $28 million in the prior-year period. The year-to-year change was primarily driven by lower specific reserve requirements in the current year. Refer to "Receivables and Allowances" section on page 67 for additional information.
Current report — wording carried from elsewhere
•Lower net exchange losses (including derivative instruments) of $68 million; partially offset by
Current report — wording carried from elsewhere
•Higher non-operating retirement-related cost of $144 million. Refer to "Retirement-Related Plans" on page 62 for additional information; and
Current report — wording carried from elsewhere
(1)The tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income.