IBM Confronts Software Sales Shortfall Amid Shifting Client Spending Priorities

IBM's second quarter of fiscal 2026 saw a significant shortfall in software sales, which CEO Arvind Krishna attributed to 'execution.' The company witnessed a shift in client spending priorities towards supply chain-constrained hardware and cybersecurity-focused software. This led to the failure to close a double-digit number of large deals on the expected timelines.

Krishna explained that many clients purchase mainframe and associated software through enterprise license agreements, creating a strong incumbency moat for IBM. However, with clients prioritizing other capital investments, the timing of these deals shifted. Krishna noted that about one-third of the affected deals had since closed, indicating a deferral rather than destruction.

IBM's CFO James Kavanaugh highlighted the company's software-focused acquisitions, including Red Hat, HashiCorp, and Confluent. These operations power a majority of IBM's high-margin subscription-based recurring software revenues. Krishna also touted plans to increase the use of AI to help scale software development, bolster sales and marketing efforts, and optimize the supply chain.