IBM Falls Short on Execution Amid Customer Spending Shift

IBM CEO Arvind Krishna admitted that the company fell short in execution during its second quarter of fiscal 2026, but expressed confidence in the future. The shortfall was primarily due to a sudden shift in customer spending from software to AI-focused hardware components.

Krishna pointed out that this shift was caused by customers prioritizing supply chain-constrained infrastructure and cybersecurity-focused software over IBM's traditional offerings. CFO James Kavanaugh explained that clients were purchasing servers, storage, and memory ahead of expected price increases, leading to a delay in closing several large deals.

However, Krishna announced that about one-third of the delayed deals had since closed, indicating that the shortfall was due to deferral rather than destruction. He emphasized IBM's conviction in its business and ability to grow shareholder value despite the challenging technology spending environment.

Krishna also highlighted the company's plans to increase AI usage for software development, sales, marketing, and supply chain optimization. This is expected to enhance margins and free cash flow commitments while improving growth capture.