IBM Bounces Back from Q2 Software Shortfall Amid Shift in Client Priorities

IBM's CEO Arvind Krishna attributed the company's second-quarter software shortfall to execution issues, rather than a fundamental shift in customer demand. In an earnings call, Krishna noted that customers are still buying IBM's core software and infrastructure products, but at a slower pace.

The issue lies with the vendor's ability to close large deals on time, which accounted for the majority of the shortfall. CFO James Kavanaugh explained that many clients purchase mainframe and associated software through enterprise license agreements, which can take longer to close due to their capital-intensive nature.

However, Krishna claimed that IBM has already started to see a rebound, with about one-third of the shifted deals closing in just three weeks. He attributed this to the company's efforts to adapt to changing client priorities and deliver greater business value through innovation.

The CEO also highlighted IBM's growing software business, which is driven by acquisitions such as Red Hat, HashiCorp, and Confluent. These companies power a majority of IBM's high-margin subscription-based recurring software revenues, with HashiCorp registering record bookings during the quarter.