Krishna: IBM Execution Shortfall Due to Client Spending Shift

IBM CEO Arvind Krishna attributed the company's second quarter software shortfall to 'execution' rather than a fundamental issue with its business model. In an earnings call, Krishna explained that a sudden shift in customer spending from specific parts of IBM's software portfolio to AI-focused hardware components outside of its traditional offerings led to the shortfall.

Krishna noted that about one-third of the large deals that slipped have since closed, and he expressed confidence that the remaining deals would follow suit. He emphasized that the shift was a deferral rather than destruction, and that IBM's portfolio is well-positioned to help clients realize value in AI.

The CEO also highlighted IBM's plans to increase its use of AI to scale software development, bolster sales and marketing efforts, and optimize its supply chain. He pointed to recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of IBM's high-margin subscription-based recurring software revenues.

Krisha emphasized that IBM is adapting to deliver greater business value to clients around its innovation and greater economic value to align with client priorities. He expressed conviction in the strength of the company's business and its ability to grow and drive shareholder value, despite a dynamic technology spending environment.