Clues ahead of PLMish earnings season? Or not?

PLMish earnings start tomorrow, when Sandvik reports its second-quarter results. I don’t know what they’ll say, but I’m getting questions about PLMish earnings since IBM pre-announced results on Tuesday morning, so let’s explore.

[Quick refresher: US companies release preliminary results when the news is either going to be better or worse than expected, because they’re worried that the news could create a massive share price spike on the news. Many stocks trade up or down before the official earnings release time, and announcing at a time that surprises the market can tamp down these spikes. Companies might also pre-announce when they’re worried the news, good or bad, could leak; securities law requires that all investors receive the news at the same time, so a leak could leave the company open to lawsuits. Anyway …]

Yesterday, IBM announced that it expects to miss total revenue estimates for the second quarter due to worse than expected performance in its Software and Infrastructure segments. Specifically, IBM said, “In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases….While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.” 

Let’s parse this a bit at a time: Customers shifted their budgets to “secure supply-constrained infrastructure.” This is probably because they see hardware vendors shifting critical chips to AI infrastructure, and supply chain shocks due to tariffs or shipping problems—most people hate uncertainty and buy to minimize future impact.

IBM went on to say, “In addition, clients were distracted with rapidly-evolving, industry-wide cybersecurity concerns in the quarter…” This might be due to the release of Claude Mythos, Anthropic’s AI model that, for some reason that should have been obvious long ago, finally led people to realize that AIs can and will identify software vulnerabilities that bad actors will exploit. One report I saw said that Mythos can find thousands of zero-day flaws across operating systems and web browsers. If you worry that your corporate systems could be vulnerable, prioritizing technology to secure those existing assets takes precedence over almost everything else.

Finally, IBM said, “We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.” Numerous large deals failing to close isn’t good for anyone. 

IBM CEO Arvind Krishna took full responsibility: “These conditions require our teams to execute perfectly, and this quarter we faltered … These are not excuses, but they are realities. Our job is to help our clients through uncertainty, to find paths forward to grow their businesses no matter what is happening in the external environment.” Admirable in a world where blaming others happens all too often.

Do not think IBM is in trouble. The company now expects Q2 total revenue of $17.2 billion, short by almost $700 million, but did report a 5% increase in software revenue and a 1% increase in consulting revenue (all % are constant currency). Mr. Krishna sought to reassure investors, writing that the “z17 [mainframe launch that didn’t have the expected Q2] remains at nearly 130 percent program-to-program, well ahead of z16 which was our strongest program on record.” They’ll be fine.

The company will hold its Q2 earnings call next week, when we’ll get more details.

What could this mean for our little PLMish corner of the world? Companies that divert funding to cybersecurity efforts could delay their PLMish spending, since engineering/design/manufacturing tools are a more routine, strategic decision rather than a response to an emergency hacking threat. Most of the industrial companies I speak to have a separate budget pool for cybersecurity technology, so we’ll have to wait for PLMish earnings to tell us if there’s any ripple effect.

Too, customers’ cybersecurity focus may not have affected IBM’s software revenue all that much. I don’t follow IBM in detail, but I did read that IBM’s softer-than-expected software revenue was due to its transaction processing business, which is related to mainframe sales — in other words, IBM’s software shortfall was tied to hardware sales, not to actual softness in the software business as we typically mean it. IBM’s results may not mean much for PLMish software.

IBM’s shares traded down a whopping 25% since the press release hit the wires. That might be the biggest single-day decline since the 1960s. Yowza. Who knows what that would have been on the day the release was supposed to happen … the share price ahead of the opening today (Wednesday) is up 3%.

Sanvik reports results tomorrow, and the big PLMish vendors the week of 27 July.