IBM Brushes Off Software Sales Shortfall, Pins Hopes on AI and Recent Acquisitions

IBM CEO Arvind Krishna acknowledged that his company experienced a shortfall in software sales during its second quarter of fiscal 2026, but stated that this was due to execution issues rather than any fundamental problem with IBM's business.

The shortfall occurred because customers shifted their spending from specific parts of IBM's software portfolio to AI-focused hardware components outside of IBM's traditional offerings. This shift was driven by supply chain constraints and the desire to secure infrastructure ahead of expected price increases, said CFO James Kavanaugh.

As a result, IBM failed to close a double-digit number of large deals during the quarter, accounting for most of the shortfall. However, Krishna reported that about one-third of these deals had since closed, indicating that this was a deferral rather than a destruction of sales.

Krishna emphasized that IBM's conviction in its business remains unchanged and that the company is well-positioned to help clients realize value in a secure, cost-effective, and scalable way. He also highlighted plans to increase the use of AI to scale software development, bolster sales and marketing efforts, and optimize the supply chain.

In addition, Krishna pointed to IBM's recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of its high-margin subscription-based recurring software revenues. Kavanaugh noted that these operations have been successful, with record bookings at HashiCorp, strong start at Confluent, and increased revenue growth at Red Hat.