IBM Admits Execution Shortfall, but Sees Growth Ahead

IBM CEO Arvind Krishna acknowledged that his company faced 'execution' challenges in the second quarter of fiscal 2026, resulting in a software shortfall. However, he expressed confidence that IBM is adapting to changes in client spending priorities and is poised for growth.

Krishna attributed the shortfall to a shift in customer spending from traditional software offerings to AI-focused hardware components outside of IBM's core competencies. This shift was particularly evident in the vendor's enterprise license agreements, which typically contain a high concentration of transaction processing software.

IBM witnessed a significant number of large deals slip their expected close dates, accounting for the majority of the shortfall. However, Krishna claimed that about one-third of these shifted deals have since closed, providing an indication that the delay was due to deferral rather than destruction.

Krishna also highlighted IBM's plans to increase its use of AI to help scale software development, bolster sales and marketing efforts, and optimize its supply chain. 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.

IBM's recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, have powered a majority of the company's high-margin subscription-based recurring software revenues. These operations are expected to drive growth, with momentum evident in the quarter's results.