IBM Sees Shift in Customer Spending Priorities Amid Software Sales Shortfall

IBM's CEO Arvind Krishna acknowledged that the company fell short in its software sales execution during the second quarter of its fiscal 2026. The shortfall was attributed to a shift in customer spending priorities towards supply chain-constrained hardware and cybersecurity-focused software, which moved away from some of IBM's core software and infrastructure competencies.

Krisha explained that clients were prioritizing other capital expenditures, such as servers, storage, and memory purchases, ahead of expected price increases. This led to a delay in closing large deals on the timelines expected by IBM, resulting in a double-digit number of missed deals. The CEO stated that about one-third of these shifted deals had since closed.

Krisha emphasized that this was not a destruction of business but rather a deferral of deals. He added that IBM is adapting to deliver greater business value to clients around its innovation and economic value aligned with client priorities. The company's CFO, James Kavanaugh, highlighted the momentum in software-focused acquisitions, including Red Hat, HashiCorp, and Confluent.

Kavanaugh noted that these operations power a majority of IBM's high-margin subscription-based recurring software revenues. He also mentioned that HashiCorp registered record bookings during the quarter, while Confluent got off to a strong start after its first full quarter post-close. Red Hat posted an increase in revenue growth with its OpenShift platform hitting $2.2 billion in annual revenue run rate.