IBM CEO Arvind Krishna acknowledged execution challenges during the company's fiscal Q2 2026 earnings call, citing a sudden shift in customer spending from software to AI-focused hardware. The shortfall was attributed to a shift in client priorities toward supply-constrained infrastructure like servers, storage, and memory, which delayed the closure of a double-digit number of large deals.
Krishna emphasized that the issue was limited to a capital-expenditure-sensitive part of IBM's software portfolio, noting that the company had already started recovering some of the deferred deals. About one-third of the slipped transactions had closed within the first three weeks, suggesting the delays were likely deferrals rather than lost opportunities.
IBM's CFO James Kavanaugh explained that many clients purchase mainframe and associated software through enterprise license agreements, which are treated as capital investments. The shift in spending priorities led to delays in these deals, but Krishna expressed confidence in IBM's ability to adapt and deliver greater business value to clients.
Looking ahead, Krishna highlighted plans to leverage AI to scale software development, enhance sales and marketing, and optimize the supply chain. He also pointed to recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which contribute significantly to IBM's high-margin subscription-based recurring software revenues. Despite the challenges, IBM's stock price remained stable following the earnings release.