IBM Admits Execution Shortfalls Behind Q2 Software Slump

IBM CEO Arvind Krishna admitted that the company's second quarter software shortfall was due to execution issues, rather than any fundamental problems with its business. He attributed the shortfall to a shift in customer spending from IBM's traditional areas of strength, such as software and infrastructure, to supply chain-constrained hardware and cybersecurity-focused software.

Krishna said that about one-third of the deals that slipped had already closed, which he saw as a positive sign. He also highlighted IBM's plans to increase its use of AI to help scale software development, bolster sales and marketing efforts, and optimize supply chains. These moves are expected to enhance margins and free cash flow while improving the company's ability to capture growth.

Krishna pointed to IBM's recent acquisitions, including Red Hat, HashiCorp, and Confluent, as key drivers of its software-focused strategy. He noted that these operations power a majority of IBM's high-margin subscription-based recurring software revenues, with HashiCorp registering 'record bookings' during the quarter.