IBM CEO Attributes Software Shortfall to Execution Issues, Sees Rebound Ahead

IBM CEO Arvind Krishna acknowledged that his company's performance in the second quarter of its fiscal 2026 was marred by a 'software shortfall', but emphasized that this was largely due to execution issues rather than any fundamental problems with IBM's business. The shortfall, which Krishna attributed to a shift in customer spending priorities towards AI-focused hardware components and cybersecurity software, led to the failure to close several large deals on time.

The CEO explained that many clients purchase mainframe and associated software through enterprise license agreements, which can be capital-intensive investments. As these clients prioritize other capex investments, the timing of these deals shifted. Krishna stated that about one-third of the delayed deals have since closed, with a low number in the 'low 10s'.

Krishna expressed confidence in IBM's business and its ability to grow and drive shareholder value, despite the challenges faced in Q2. He highlighted plans to increase the use of AI to enhance software development, sales, marketing efforts, and supply chain optimization, which he believes will improve the company's margin and free cash flow commitments.

IBM's CFO James Kavanaugh added that the company's recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, are driving a majority of its high-margin subscription-based recurring software revenues. The acquisitions have shown strong performance, with HashiCorp registering record bookings during the quarter.