IBM CEO Admits to Execution Shortfall Amid Shift in Customer Spending

IBM CEO Arvind Krishna acknowledged that the company fell short in executing its plans during the second quarter of fiscal 2026, citing a dramatic shift in customer spending towards AI-focused hardware components.

The sudden and significant change in client behavior resulted in a double-digit number of large deals not being closed on time, contributing to the shortfall. According to CFO James Kavanaugh, this was largely due to clients prioritizing supply chain-constrained infrastructure and cybersecurity software over IBM's core offerings.

Krishna emphasized that the company has already started to see a shift back from this trend, with about one-third of the affected deals having closed in just three weeks. He expressed confidence that most of these deals would eventually close, stating that 'a third have already closed in the first three weeks gives us an indication, not yet full evidence, but a good indication that this was deferral and not destruction.'

Despite the temporary setback, Krishna remains optimistic about IBM's prospects, citing its strong portfolio and ability to adapt to changing client priorities. He highlighted the company's recent acquisitions in software-focused areas, such as Red Hat, HashiCorp, and Confluent, which have contributed significantly to its high-margin subscription-based revenues.