IBM Sees Rebound After Software Sales Shortfall

IBM's CEO Arvind Krishna admitted to a 'execution' shortfall in the company's second quarter software sales, but said the firm has already started to see a rebound. The shortfall was largely due to a shift by customers towards AI-focused hardware components and cybersecurity software, which moved away from IBM's traditional offerings.

Krishna attributed the shortfall to 'execution,' saying that IBM fell short in this area during the quarter. CFO James Kavanaugh added that the company witnessed a shift in client spending priorities at the end of June, with customers moving towards servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.

This led to IBM failing to close several large deals on time, accounting for the majority of the shortfall. However, Krishna said that about one-third of these delayed deals have since closed. He added that this was a temporary deferral and not destruction of business value, as two-thirds to three-fourths of these deals would normally be expected to close over the next six months.

Krishna also touted plans to increase the use of AI to help scale software development, bolster sales and marketing efforts, and optimize the supply chain. He highlighted IBM's recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of IBM's high-margin subscription-based recurring software revenues.