IBM CEO Blames Execution Shortfall on Shift to AI-Focused Hardware

IBM's CEO Arvind Krishna acknowledged that the company fell short in its execution during the second quarter of fiscal 2026, but expressed confidence in IBM's ability to grow and drive shareholder value.

The shortfall was largely due to a sudden shift in customer spending from specific parts of IBM's software portfolio to AI-focused hardware components outside of IBM's traditional offerings. This led to a delay in closing large deals on the expected timeline, accounting for the majority of the shortfall.

CFO James Kavanaugh explained that many clients purchase mainframe and associated software through enterprise license agreements, which create a strong incumbency moat for IBM. However, as clients prioritize other capex investments, the timing of these deals shifted.

Krishna stated that about one-third of the delayed deals had since closed, giving them 'a good indication' that this was a deferral rather than destruction of business.