IBM Sees Rebound in Software Sales After Execution Shortfall

IBM CEO Arvind Krishna admitted that the company fell short in its software sales execution during the second quarter of fiscal 2026, but pointed to a rebound in sales. The shortfall was attributed to a shift in customer spending from IBM's core software and infrastructure competencies to AI-focused hardware components outside of the company's traditional offerings.

Krishna stated that the company witnessed a 'shift in client spending priorities' at the end of June, with customers prioritizing servers, storage, and memory purchases due to supply chain constraints. This shift led to IBM failing to close a double-digit number of large deals on time, accounting for the majority of the shortfall.

However, Krishna noted that about one-third of the shifted deals had since closed, indicating that it was likely a deferral rather than destruction. He expressed confidence in the company's ability to grow and drive shareholder value, citing its well-positioned portfolio to help clients realize value in a secure, cost-effective, and scalable way.

Krishna also highlighted IBM's plans to increase the use of AI to scale software development, bolster sales and marketing efforts, and optimize its supply chain. The company has been investing heavily in AI and software through acquisitions such as Red Hat, HashiCorp, and Confluent, which power a majority of IBM's high-margin subscription-based recurring software revenues.