IBM Sees Rebound After Shortfall in Software Sales Amid Shift in Client Spending
IBM's CEO Arvind Krishna acknowledged the company had a shortfall in software sales during its second quarter of fiscal 2026, but expressed confidence that the situation is improving. The shortfall was largely due to a shift in customer spending from IBM's traditional software and infrastructure offerings towards AI-focused hardware components and cybersecurity software, which are in high demand.
However, Krishna noted that about one-third of the large deals that were delayed have since closed, giving the company 'a good indication' that this was a deferral rather than a destruction of business. He attributed the shortfall to execution issues and said IBM is adapting its approach to better align with client priorities.
The company's CFO James Kavanaugh explained that the shift in customer spending was due to concerns over supply chain constraints and potential price increases, leading clients to prioritize purchases of servers, storage, and memory. This resulted in a delay of several large deals, but IBM is now seeing a rebound as it works with clients to finalize these transactions.
Krishna emphasized that IBM's business remains strong, and the company is well-positioned to help clients realize value in AI, particularly through its recent software-focused acquisitions such as Red Hat, HashiCorp, and Confluent. These operations power a majority of IBM's high-margin subscription-based recurring software revenues.