IBM CEO Sees Rebound as Customers Shift Priorities Back to Core Offerings

IBM CEO Arvind Krishna acknowledged that the company's software performance fell short in the second quarter of its fiscal 2026, but pointed to a rebound as customers begin to shift their priorities back towards IBM's offerings.

Krishna attributed the shortfall to a sudden and dramatic change in customer spending patterns, with clients favoring supply chain-constrained hardware and cybersecurity-focused software over core areas such as mainframe and associated software stacks. This shift led to IBM missing out on several large deals, which Krishna estimated were in the 'low 10s', but emphasized that the company has already seen about one-third of these deals close.

Krishna warned investors that the technology spending environment remains dynamic, requiring IBM to adapt and evolve its approach to meeting client needs. He highlighted plans to leverage AI to enhance software development, bolster sales and marketing efforts, and optimize supply chains, which he believes will improve margins and free cash flow commitments.

The company's CFO, James Kavanaugh, added that IBM witnessed a 'shift in client spending priorities' towards servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. He noted that the delayed deals were largely related to enterprise license agreements for mainframe and associated software stacks, which typically contain a high concentration of transaction processing software.

Krishna expressed confidence in IBM's ability to grow and drive shareholder value, citing the company's strong portfolio and opportunities ahead. He pointed to recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, as key drivers of high-margin subscription-based recurring software revenues.