IBM Admits Execution Shortfall as Customers Shift to AI-Focused Hardware

IBM's Q2 earnings call highlighted a significant shift in customer spending from its traditional software portfolio to AI-focused hardware components. CEO Arvind Krishna attributed the shortfall to execution issues, stating that 'it comes down to execution.'

CFO James Kavanaugh explained that IBM witnessed a client spending priority shift towards supply-constrained infrastructure and cybersecurity-focused software during June's end. This led to the vendor failing to close several large deals on expected timelines.

Krisha noted that about one-third of those shifted deals had since closed, indicating 'not yet full evidence' but a good sign that it was deferral rather than destruction. IBM is adapting its business model to better align with client priorities and deliver greater value.

The company is also accelerating changes to its go-to-market model, aiming to expand coverage across thousands of additional clients where its portfolio is highly relevant. Its recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, are driving high-margin subscription-based recurring software revenues.