Dell, HPE and the Servers Clients Bought InsteadNarrow moat

IBM (IBM) — moat facet

Dell and HPE do not replace IBM's mainframes, but in June 2026 they won the budget that mainframe upgrades normally get.

IBM names its principal infrastructure competitors as "Dell Technologies, Hewlett-Packard Enterprise (HPE), Intel, NetApp and Pure Storage as well as original device manufacturers (ODMs)"1. It also says cloud service providers are building their own infrastructure2. Dell's page in this app describes the AI-server boom from the seller's side.

Infrastructure segment profit ($M)965Q2 2025835Q2 20261,213H1 20251,360H1 2026IBM Form 10-Q Q2 2026
A weak quarter inside a stronger half.

For years this competition mattered at the edges of IBM's business, in Power servers and storage. None of the companies on that list makes a mainframe3. That changed in character in the second quarter of 2026, when the contest became one for the budget rather than the workload. Krishna wrote that clients shifted "their quarterly capex spend toward servers, storage, and memory purchases" ahead of expected price increases4.

IBM caught some of that spending. Distributed Infrastructure, its Power and Storage lines, grew 37.3% in the quarter5, "our strongest quarter on record"6. But IBM Z fell 42.0%7, and the Infrastructure segment's profit fell to $835 million from $965 million8, a margin of about 21.8% against 23.3%9.

The relationship is budget competition. Dell and its peers do not replace mainframes; they compete for the same capital, and in a supply squeeze their products are the ones clients must lock in first.

IBM caught the shift in its own backlog. It said Power and Storage "grew at a record pace in the second quarter, now having built up an order backlog of nearly $500 million"10. That backlog is small against the $2,570 million of Hybrid Infrastructure revenue in the quarter11, but it shows IBM competing for the same budget as Dell and HPE with products of its own, not only losing it.

The number that tests IBM's position is the Infrastructure margin. If it stays below 20% through the second half of 2026, the capital shift would be lasting longer than a single quarter's scramble for memory.

Moat trajectory: Narrowing

Infrastructure margin 21.8% in Q2 2026, from 23.3%.

The number that tests this moat
Reported
Infrastructure segment profit margin, latest quarter
21.8% (Q2 2026), from 23.3%

IBM hardware against rivals for the same capital; a margin below 20% through the second half would mean the budget shift is lasting.

Source: IBM Form 10-Q, Q2 2026 ↗
References
  1. ReportedIBM names its principal infrastructure competitors as "Dell Technologies, Hewlett-Packard Enterprise (HPE), Intel, NetApp and Pure Storage as well as original device manufacturers (ODMs)".
    IBM Form 10-K for 2025 - Item 1 business, competitors and strategic partners, Item 1A risk factors, executive officers. — FY2025 · publ. 24 February 2026 · source ↗
  2. ReportedIt also says cloud service providers are building their own infrastructure.
    IBM Form 10-K for 2025 - Item 1 business, competitors and strategic partners, Item 1A risk factors, executive officers. — FY2025 · publ. 24 February 2026 · source ↗
  3. ReportedNone of the companies on that list makes a mainframe.
    IBM Form 10-K for 2025 - Item 1 business, competitors and strategic partners, Item 1A risk factors, executive officers. — FY2025 · publ. 24 February 2026 · source ↗
  4. ReportedKrishna wrote that clients shifted "their quarterly capex spend toward servers, storage, and memory purchases" ahead of expected price increases.
    Arvind Krishna's letter to IBM investors with preliminary second-quarter 2026 results, Form 8-K exhibit 99.1. — Q2 2026 · publ. 14 July 2026 · source ↗
  5. ReportedDistributed Infrastructure, its Power and Storage lines, grew 37.3% in the quarter, "our strongest quarter on record".
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Infrastructure and Financing segment results. — Q2 2026 · publ. 23 July 2026 · source ↗
  6. ReportedDistributed Infrastructure, its Power and Storage lines, grew 37.3% in the quarter, "our strongest quarter on record".
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Infrastructure and Financing segment results. — Q2 2026 · publ. 23 July 2026 · source ↗
  7. ReportedBut IBM Z fell 42.0%, and the Infrastructure segment's profit fell to $835 million from $965 million, a margin of about 21.8% against 23.3%.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Infrastructure and Financing segment results. — Q2 2026 · publ. 23 July 2026 · source ↗
  8. ReportedBut IBM Z fell 42.0%, and the Infrastructure segment's profit fell to $835 million from $965 million, a margin of about 21.8% against 23.3%.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Infrastructure and Financing segment results. — Q2 2026 · publ. 23 July 2026 · source ↗
  9. Moat Explorer calcBut IBM Z fell 42.0%, and the Infrastructure segment's profit fell to $835 million from $965 million, a margin of about 21.8% against 23.3%.
    Moat Explorer calculation from IBM's reported figures ($ millions unless stated). Segment mix 2025: Software 29,962 / 67,472 = 44.4% of segment revenue and 9,920 / 16,364 = 60.6% of segment profit; Consulting 21,055 / 67,472 = 31.2% and 2,464 / 16,364 = 15.1%; Infrastructure 15,718 / 67,472 = 23.3% and 3,458 / 16,364 = 21.1%; Financing 737 / 67,472 = 1.1% and 521 / 16,364 = 3.2%. Segment revenue below reported revenue: 60,530 - 59,621 = 909 (2022); 61,860 - 61,229 = 631 (2023); 62,753 - 62,510 = 243 (2024); 67,535 - 67,472 = 63 (2025). Growth: revenue 67,535 / 62,753 - 1 = 7.6% (2025); 62,753 / 61,860 - 1 = 1.4% (2024); Q2 2026 17,162 / 16,977 - 1 = 1.1%; Software 25,011 / 23,629 - 1 = 5.8%, 27,085 / 25,011 - 1 = 8.3%, 29,962 / 27,085 - 1 = 10.6%; Software Q2 2026 7,761 / 7,387 - 1 = 5.1%; Consulting 20,884 / 20,058 - 1 = 4.1%, 20,692 / 20,884 - 1 = -0.9%, 21,055 / 20,692 - 1 = 1.8%, 21,055 / 20,058 - 1 = 5.0% over three years, Q2 2026 5,327 / 5,314 - 1 = 0.2%; Infrastructure 14,593 / 15,288 - 1 = -4.5%, 14,020 / 14,593 - 1 = -3.9%, 15,718 / 14,020 - 1 = 12.1%, Q2 2026 3,835 / 4,142 - 1 = -7.4%; Financing 737 / 713 - 1 = 3.4%, Q2 2026 186 / 166 - 1 = 12.0%; Transaction Processing 8,603 / 7,714 - 1 = 11.5% and 8,603 - 7,714 = 889 added 2023-2025; Hybrid Cloud 7,327 - 5,827 = 1,500 added 2023-2025; 11% to 13% of 7,327 = 806 to 952 a year; OpenShift 30% x 2.0bn = 0.6bn a year; Infrastructure Support 5,100 / 6,021 - 1 = -15.3% (2021-2025) and 4,800 / 5,100 - 1 = -5.9%; research and development 8,316 / 7,479 - 1 = 11.2%; Software segment profit 9,920 / 7,012 - 1 = 41.5%; Consulting segment profit 2,464 / 1,871 - 1 = 31.7%; financing receivables 15,193 / 11,738 - 1 = 29.4%; total debt 62.0bn - 50.9bn = 11.1bn since 2022. Shares: mainframe-linked revenue 10,618 + 8,603 + 5,100 = 24,321, and 24,321 / 67,535 = 36.0%; Hybrid Cloud 7,327 / 29,962 = 24.5% of Software; OpenShift 2.0 / 24.6 = 8.1% of software ARR; June 2026 ARR 24.6bn / 2025 Software revenue 29.962bn = 82.1%; revenue outside the United States 40,643 / 67,535 = 60.2%, so about 60%; research and development 8,316 / 67,535 = 12.3% of revenue; quantum more than 10bn / 5 years = more than 2bn a year, and 2.0 / 8.316 = 24%, about a quarter; goodwill 67,717 / 151,880 = 44.6% of total assets; goodwill plus intangibles (67,717 + 11,391) / 151,880 = 52.1%; other assets 151,880 - 67,717 - 11,391 = 72,772; HashiCorp goodwill 4,684 / 7,433 = 63.0%; Confluent goodwill 7,238 / 11,602 = 62.4%, other net assets 11,602 - 7,238 = 4,364; stock-based compensation 1,685 / 16,364 = 10.3% of segment profit; Kyndryl spin 55,179 / 73,620 - 1 = -25.0% of 2020 revenue, about a quarter. Margins: Software Q2 2025 2,296 / 7,387 = 31.1%; Consulting Q2 2025 562 / 5,314 = 10.6%; Infrastructure Q2 2026 835 / 3,835 = 21.8% and Q2 2025 965 / 4,142 = 23.3%; total segment profit Q2 2026 4,092 / 17,110 = 23.9% and Q2 2025 4,003 / 17,009 = 23.5%; Financing Q2 2026 108 / 186 = 58% (reported 58.0%); pre-tax margin 10,328 / 67,535 = 15.3%; Global Technology Services 2020 117 / 27,039 = 0.4%; gross margin Q2 2026 9,907 / 17,162 = 57.7% and Q2 2025 9,977 / 16,977 = 58.8%. Red Hat: 7,327 / 35,100 = 20.9% of consideration; pre-tax at the Software margin 0.331 x 7,327 = 2,425, and 2,425 / 35,100 = 6.9%, about 7%; after a 21% tax 6.9% x 0.79 = 5.5%; revenue needed for 8% after tax 0.08 x 35,100 / (0.331 x 0.79) = 10,738, about 10.7bn, which is 10,738 / 7,327 = 1.47 times 2025 revenue: about 3.2 years at 12.5% growth, 4.4 years at 9% and 7.8 years at 5%. Cash and capital: acquisitions plus dividends 2025 8,294 + 6,255 = 14,549, and 14,549 / 14,734 = 98.7% of free cash flow; first half 2026 acquisitions 10.5bn / free cash flow 4.8bn = 2.2 times; dividends 6,255 / 10,593 = 59.0% of net income; Consulting backlog 31.9bn / 21.055bn = 1.5 years of revenue; remaining performance obligations 71bn - 68bn = 3bn lower in six months; pension risk transfers 16 + 6 + 1.2 = 23.2bn; defined-benefit obligations 14,460 + 29,872 = 44,332 against plan assets 18,073 + 26,733 = 44,806; free cash flow guidance 14.7bn + 1.0bn = 15.7bn. Further: revenue per employee 67,535 / 264.3 thousand = about 255,500 dollars; Q2 2026 Software share of segment profit 2,502 / 4,092 = 61.1%; first-half Software 14,813 / 13,722 - 1 = 8.0%; amortisation of acquired intangibles 2,166 / 1,627 - 1 = 33.1%; free cash flow 14.7 / 6.5 = 2.3 times (2021-2025); Q2 2026 Transaction Processing 2,208 - 2,030 = 178 lower, Data 1,782 - 1,499 = 283 higher, Hybrid Cloud 1,998 - 1,796 = 202 higher, Transaction Processing above Hybrid Cloud by 2,030 - 1,998 = 32; share price 225.51 / 332.46 - 1 = -32.2% from the 52-week high; first half 2026 Hybrid Cloud 3,903 / 3,483 - 1 = 12.1%, Transaction Processing 3,963 / 4,037 - 1 = -1.8%, Hybrid Infrastructure 4,678 / 4,512 - 1 = 3.7%, Infrastructure Support 2,483 / 2,515 - 1 = -1.3%, Automation 3,692 / 3,467 - 1 = 6.5%, Data 3,256 / 2,736 - 1 = 19.0%, Financing 406 / 357 - 1 = 13.7%, Strategy and Technology 5,829 / 5,702 - 1 = 2.2%, Intelligent Operations 4,770 / 4,680 - 1 = 1.9%; Strategy and Technology Q2 2026 2,933 / 2,920 - 1 = 0.4%; Infrastructure Support 2021 share 6,021 / 14,188 = 42.4%; Infrastructure 2020 pre-tax margin 1,654 / 14,533 = 11.4%; Consulting 2020 pre-tax margin 1,034 / 16,257 = 6.4%; buybacks 2015-2019 4,609 + 3,502 + 4,340 + 4,443 + 1,361 = 18,255; Hybrid Cloud 7,327 / 67,535 = 10.8% of revenue, about a tenth; acquisitions 2023 to June 2026 5.1 + 3.3 + 8.3 + 10.5 = 27.2bn; HashiCorp net of acquired cash and securities 7,433 - 929 - 331 = 6,173; ARR 24.6 - 21.3 = 3.3bn from end-2024 to June 2026; net interest excluding Financing 1,312 / 984 - 1 = 33.3%; 2024 signings 25,103 / 20,692 = 1.21, about 21% above revenue; generative AI book 12.5 - 9.5 = 3.0bn added in Q4 2025; EMEA growth gap 14.2 - 9.0 = 5.2 points; revenue 57,350 / 73,620 - 1 = -22.1% from 2020 as filed to 2021. Trailing twelve months to June 2026: revenue 67,535 - 31,519 + 33,079 = 69,095; net income 10,593 - 3,249 + 3,381 = 10,725; P/E 212,460 / 10,725 = 19.8; P/S 212,460 / 69,095 = 3.07 - segment, gross and pre-tax margins. — FY2015-Q2 2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in IBM's Annual Reports, Forms 10-Q, results releases and market data; operands shown in the source line.
  10. ReportedIt said Power and Storage "grew at a record pace in the second quarter, now having built up an order backlog of nearly $500 million".
    IBM second-quarter 2026 results release, Form 8-K exhibit 99.1 - cash, debt, acquisitions, free cash flow, backlog and full-year expectations. — Q2 2026 · publ. 22 July 2026 · source ↗
  11. ReportedThat backlog is small against the $2,570 million of Hybrid Infrastructure revenue in the quarter, but it shows IBM competing for the same budget as Dell and HPE with products of its own, not only losing it.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Infrastructure and Financing segment results. — Q2 2026 · publ. 23 July 2026 · source ↗
Sources
Generated September 28, 2026