IBM CEO Arvind Krishna acknowledged execution challenges during the company's fiscal Q2 2026 earnings call, citing a sudden shift in customer spending away from certain software products toward AI-focused hardware. Krishna attributed the shortfall to a failure to close a double-digit number of large deals on expected timelines, primarily due to clients prioritizing supply-constrained infrastructure like servers and storage ahead of anticipated price hikes.
Krishna emphasized that the shortfall was limited to capital expenditure-sensitive areas of IBM's software portfolio, noting that about one-third of the deferred deals had already closed within three weeks. He expressed optimism that this trend indicated deferral rather than lost business, with expectations that two-thirds to three-fourths of the slipped deals would close over the next six months.
The CEO highlighted IBM's strategic focus on AI to enhance software development, sales, marketing, and supply chain optimization. He also pointed to recent acquisitions like Red Hat, HashiCorp, and Confluent as key drivers of high-margin subscription-based software revenues. CFO James Kavanaugh noted record bookings for HashiCorp, strong performance from Confluent, and Red Hat's OpenShift platform reaching $2.2 billion in annual revenue run rate.
Despite the challenges, Krishna reaffirmed IBM's conviction in its business strength and ability to drive shareholder value. He emphasized the company's adaptability in responding to dynamic technology spending environments and its commitment to helping clients deploy AI securely and cost-effectively.