IBM CEO Blames Execution Shortfall, Sees Signs of Rebound with AI Focus

IBM CEO Arvind Krishna attributed the company's software shortfall in its second quarter to 'execution', rather than fundamental issues. This comes after a warning earlier this month that customers were shifting their spending towards supply chain-constrained hardware and cybersecurity-focused software, away from IBM's core competencies.

Krishna said that about one-third of deals that slipped due to this shift had since closed, which he saw as an encouraging sign. He also pointed out that normally only two-thirds to three-quarters of such deals would close within six months, so the fact that a third have already done so suggests that these were deferrals rather than cancellations.

The CEO emphasized IBM's confidence in its business and ability to grow and drive shareholder value, despite the challenges. He highlighted plans to increase AI usage for software development, sales and marketing efforts, and supply chain optimization. IBM also sees potential growth opportunities beyond its current client base of Fortune 1000 companies.

Krishna specifically mentioned recent acquisitions such as Red Hat, HashiCorp, and Confluent, which power a majority of the company's high-margin subscription-based recurring software revenues. CFO James Kavanaugh added that these operations saw strong results during the quarter, with record bookings for HashiCorp, a strong start for Confluent, and increased revenue growth for Red Hat.