IBM Sees Rebound After Q2 Software Sales Shortfall

IBM CEO Arvind Krishna acknowledged that the company's software sales took a hit in the second quarter of its fiscal 2026, but pointed to a rebound in recent weeks. The shortfall was largely due to a sudden shift by customers towards AI-focused hardware components and cybersecurity software, away from IBM's traditional core offerings.

Krishna attributed the issue to 'execution,' saying that the company fell short in meeting client expectations. He noted that IBM witnessed a 'shift in client spending priorities' at the end of June, with customers opting for servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.

The shift led to IBM failing to close a double-digit number of large deals on time, accounting for most of the shortfall. However, Krishna claimed that 'about' one-third of those deals have since closed, with more expected to follow in the coming months.

Krishna expressed confidence in IBM's business prospects, citing plans to increase AI adoption across various areas, including software development, sales and marketing efforts, and supply chain optimization. He also highlighted recent software-focused acquisitions, such as Red Hat, HashiCorp, and Confluent, which power a majority of IBM's high-margin subscription-based recurring software revenues.