IBM CEO Acknowledges Software Shortfall Amid Shift to AI-Focused Hardware

IBM CEO Arvind Krishna acknowledged that the company fell short in executing its plans during the second quarter of fiscal 2026, resulting in a software shortfall.

The shortfall was attributed to a sudden shift in customer spending towards AI-focused hardware components outside of IBM's traditional offerings and away from specific parts of its software portfolio.

CFO James Kavanaugh explained that the company witnessed a 'shift in client spending priorities' during the end of June, with customers opting for servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.

Krishna stated that the number of deals that slipped was in the low 10s, but IBM has since engaged with clients on these transactions, resulting in about one-third of them closing in the first three weeks after the quarter ended.

The company is confident in its ability to adapt and deliver greater business value to clients around its innovation and economic value that aligns with client priorities. Krishna emphasized that IBM's conviction in the strength of its business remains unchanged, despite the challenges faced in the second quarter.