IBM Sees Shift in Customer Spending as AI Focus Grows
IBM CEO Arvind Krishna admitted that his company's software sales fell short in the second quarter of fiscal 2026 due to a sudden shift in customer spending towards AI-focused hardware components. This shift, which occurred at the end of June, led to IBM failing to close a double-digit number of large deals on time.
Krishna explained that this was largely due to clients prioritizing other capital expenditures and shifting their spending towards servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. He noted that about one-third of the shifted deals have since closed, giving the company an indication that it was a deferral rather than destruction.
Krishna emphasized that IBM's conviction in its business remains unchanged, and that the company is well-positioned to help clients realize value in a secure, cost-effective, and scalable way. He pointed to plans to increase the use of AI to scale software development, bolster sales and marketing efforts, and optimize the supply chain.
IBM CFO James Kavanaugh highlighted the company'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. He noted that these operations have shown strong momentum, with HashiCorp registering record bookings during the quarter, and Confluent getting off to a strong start.