IBM Sees Shifts in Customer Spending as 'Execution' Short Fall

IBM CEO Arvind Krishna admitted to a 'execution' short fall in the company's second quarter of fiscal 2026, citing a shift in customer spending from IBM's core software and infrastructure competencies. This change, driven by supply chain constraints and a focus on cybersecurity, led to a shortfall in large deals that accounted for most of the missed revenue.

The shortfall was particularly pronounced in areas where clients purchase mainframe and associated software through enterprise license agreements, which create a strong incumbency moat for IBM. However, Krishna noted that about one-third of these shifted deals had since closed, providing some reassurance that this shift is a deferral rather than destruction.

IBM's management emphasized the company's confidence in its business and ability to grow despite the challenges. Krishna highlighted plans to increase the use of AI to scale software development, bolster sales and marketing efforts, and optimize the supply chain. He also touted recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of IBM's high-margin subscription-based recurring software revenues.

Krishna pointed out that momentum in these areas is strong, with HashiCorp registering 'record bookings' during the quarter and Confluent getting off to a strong start. Red Hat posted an increase in revenue growth, with its OpenShift platform hitting $2.2 billion in annual revenue run rate.