IBM Rebounds from Q2 Shortfall as Clients Shift Spending Priorities

IBM CEO Arvind Krishna admitted to 'execution' shortfalls in the company's second quarter, but expressed confidence that the vendor is adapting to changing customer spending priorities.

In a recent earnings call, Krishna explained that IBM witnessed a shift in client spending towards supply chain-constrained hardware and cybersecurity-focused software during the end of June. This shift away from some of IBM's core software and infrastructure competencies led to a shortfall in closing large deals on expected timelines.

Krishna said the number of shifted deals was in the 'low 10s' and that about one-third had since closed, indicating that the issue may have been deferral rather than destruction. He emphasized IBM's conviction in its business strength and ability to grow and drive shareholder value.

The company is adapting by increasing AI use for scaling software development, bolstering sales and marketing efforts, and optimizing its supply chain. IBM also highlighted recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of the vendor's high-margin subscription-based recurring software revenues.