IBM Sees Rebound After Software Sales Shortfall

IBM's CEO Arvind Krishna acknowledged that the company experienced a shortfall in its software sales during the second quarter of fiscal 2026, but noted that it was due to 'execution' rather than fundamental issues with the business. The shortfall was mainly attributed to a shift in customer spending towards AI-focused hardware components outside IBM's traditional offerings.

Krishna stated that about one-third of the deals that were delayed have since closed, which he sees as a positive sign that it was a temporary delay rather than a cancellation. He emphasized that the company has already started to see a rebound and is adapting to deliver greater business value to clients around its innovation.

IBM's CFO James Kavanaugh explained that the company witnessed a shift in client spending priorities during the end of June, with customers moving towards servers, storage, and memory purchases due to supply chain constraints. This led to IBM failing to close several large deals on time, accounting for the majority of the shortfall.

Krishna pointed out that the company's software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, are driving growth and have registered 'record bookings' during the quarter. He emphasized the importance of AI in scaling software development, sales, and marketing efforts, and optimizing the supply chain.