IBM Sees Rebound After Q2 Software Shortfall Amid Shift to AI-Focused Spending
IBM CEO Arvind Krishna acknowledged that the company fell short in execution during its fiscal 2026 second quarter, citing a shift in customer spending from software to AI-focused hardware components.
The shortfall was attributed to a sudden and dramatic change in client spending priorities towards servers, storage, and memory purchases, driven by supply chain constraints and expected price increases. This led to IBM failing to close a 'low 10s' number of large deals on the expected timelines, accounting for most of the software shortfall.
However, Krishna noted that about one-third of these shifted deals have since closed, giving him confidence that this was a deferral rather than destruction. He emphasized that IBM's business remains strong and its ability to grow and drive shareholder value is unchanged.
Krishna also highlighted the company's plans to increase the use of AI to enhance execution, including scaling software development, bolstering sales and marketing efforts, and optimizing supply chains. He touted IBM's recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of its high-margin subscription-based recurring software revenues.