IBM Software Sales Falter Amid Shift in Client Spending Priorities
IBM CEO Arvind Krishna acknowledged that his company's second quarter software sales fell short due to a sudden shift in customer spending priorities. In an earnings call, Krishna attributed this shortfall to clients diverting resources towards capex-sensitive areas of the portfolio.
The issue was particularly pronounced at the end of June, when client spending shifted toward hardware and cybersecurity-focused software. This led IBM to miss out on a 'low 10s' number of large deals that were expected to close during this period.
Krishna assured investors that these delayed deals are not 'destruction', but rather 'deferred'. He claimed that about one-third of the affected deals have already closed, which he believes is a positive indicator. Krishna emphasized IBM's conviction in its business and ability to drive shareholder value, despite the challenges faced.
IBM plans to address these issues by increasing the use of AI to scale software development, bolster sales and marketing efforts, and optimize supply chains. The company also highlighted its recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of IBM's high-margin subscription-based recurring software revenues.