IBM Sees Rebound from Q2 Software Shortfall

IBM's second-quarter software shortfall was attributed to a sudden shift in customer spending from specific parts of its software portfolio to AI-focused hardware components, according to CEO Arvind Krishna. This shift, which occurred at the end of June, led to the vendor failing to close a double-digit number of 'large deals' on time.

According to CFO James Kavanaugh, the shift in client spending priorities was towards servers, storage, and memory purchases 'to secure supply constrained infrastructure ahead of expected price increases.' This change resulted in IBM missing its revenue targets for the quarter. However, Krishna stated that about one-third of the affected deals have since closed.

Krishna emphasized that this was a short-term issue and not a sign of long-term decline. He pointed to plans to increase the use of AI to help scale software development, bolster IBM's sales and marketing efforts, and optimize its supply chain as solutions to the shortfall. The company is also accelerating changes to its go-to-market model to expand coverage across thousands of additional clients.