IBM CEO Admits Execution Shortfall Amid Shift in Customer Spending

IBM's CEO Arvind Krishna acknowledged that the company experienced an 'execution' shortfall in its second quarter software sales, but expressed confidence in the business's overall growth prospects.

The shortfall was attributed to a sudden shift in customer spending towards AI-focused hardware components and supply chain-constrained infrastructure, away from IBM's traditional core offerings. This shift resulted in a delay of several 'large deals' that were expected to close within the quarter, accounting for most of the shortfall.

Krishna noted that about one-third of these delayed deals have since closed, with the remaining two-thirds expected to close over the next six months. He attributed this shift to clients prioritizing other capital expenditure investments and IBM's efforts to adapt its sales strategy to meet client needs.

The company's CFO James Kavanaugh highlighted IBM's recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which have powered a majority of the company's high-margin subscription-based recurring software revenues. He also noted that these operations have registered strong performance, with record bookings from HashiCorp and a strong start from Confluent.