IBM Sees Rebound from Q2 Shortfall Amid Shift in Customer Spending

IBM CEO Arvind Krishna acknowledged that the company experienced an execution shortfall in its second quarter of fiscal 2026, but expressed confidence that it is already starting to rebound. The shortfall was attributed to a sudden shift in customer spending from specific parts of IBM's software portfolio to AI-focused hardware components outside of the company's traditional offerings.

Krishna stated that the shift was limited to a capex-sensitive area of the portfolio and emphasized the importance of execution in the current quarter. He also noted that about one-third of the 'low 10s' deals that were initially delayed have since closed, suggesting that the shortfall may be due to deferral rather than destruction.

IBM's CFO James Kavanaugh further explained that the company witnessed a shift in client spending priorities towards supply chain-constrained hardware and cybersecurity-focused software during the end of June. This led to IBM failing to close a double-digit number of large deals on the expected timelines, accounting for the majority of the shortfall.

Krishna pointed out that the company's recent acquisitions, including Red Hat, HashiCorp, and Confluent, have power a majority of its high-margin subscription-based recurring software revenues. He expressed confidence in IBM's ability to grow and drive shareholder value despite the current challenges.