IBM CEO Admits Software Shortfall, Sees Rebound Ahead

IBM CEO Arvind Krishna acknowledged that the company's software business experienced a shortfall in the second quarter of its fiscal year, attributing it to execution issues. The shortfall was largely due to a shift in customer spending from IBM's traditional software offerings to AI-focused hardware components outside of the company's core competencies.

In an earnings call, Krishna noted that this shift was a result of customers prioritizing supply chain-constrained infrastructure and cybersecurity-focused software over other areas. He stated that the number of deals impacted by this shift was in the 'low 10s', but that IBM had since engaged with clients to understand what needed to change.

Krishna claimed that about one-third of those shifted deals had already closed, a better-than-expected outcome given the company's initial expectations. He attributed this success to IBM's efforts to adapt and deliver greater business value to its clients around its innovation, as well as to better align with client priorities.

The company's software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, are expected to play a key role in driving future growth. Krishna highlighted that momentum in these areas, noting record bookings for HashiCorp and strong starts for both Confluent and Red Hat.