IBM CEO following Q2 wipeout: We're confident in our strategy

IBM CEO Arvind Krishna moved to ensure customers and investors that the company's strategy was sound following a profit warning that spurred worries about AI infrastructure spending taking away budget.

Krishna's mission came amid second quarter figures that were already disappointing. Krishna said IBM is confident in its strategy and portfolio. "We are in the early innings of a structural shift for business, and that our portfolio across software, infrastructure, and consulting is well-positioned to help our clients tap the value, and manage the challenges of an AI-driven future," he said.

IBM's Q2 falls short as budgets shift to server, storage, memory

IBM is now expecting constant currency growth of 4% to 5% with free cash flow for 2026 up about $1 billion.

Big Blue reported second quarter net income of $2.16 billion, or $2.27 a share, on revenue of $17.16 billion. Software revenue in the second quarter was $7.8 billion, up 5% from a year ago. Red Hat revenue was up 11% with data up 18%. Consulting revenue of $5.3 billion in the second quarter was flat from a year ago.

The company's hardware business delivered revenue of $3.8 billion, down 7% from a year ago, led by an IBM Z revenue decline of 42%.

Here's what Krishna had to say on the earnings call:

• "We recognize that the technology spending environment remains dynamic, and we must continue to evolve how we engage clients, bringing the full breadth of IBM's innovation to bear on their most important priorities."
• "Our second quarter software shortfall was limited to a capex sensitive area of the portfolio. The vast majority of our software business. About 80% of that revenue, is recurring in nature and delivered healthy growth in the quarter, reflecting the demand for our offerings and giving us confidence in our growth opportunity."
• "Our AI strategy is the right one for IBM, an aligns to what we are known for: hybrid sovereignty and trust. We have held the view for a while that the unprecedented investment in AI infrastructure and models will increase pressure on enterprises to generate meaningful returns from that spend. Value will increasingly shift towards the orchestration and data layers, so that clients can optimize outcomes, cost, and governance across multiple models and agents, and keep control of their proprietary data. IBM's differentiation lies in our neutrality and enterprise-grade operational control."
• "We are accelerating productivity actions across the company, spanning both spend reduction initiatives and actions designed to drive growth. These include leveraging AI to improve software development productivity, increasing the effectiveness of our sales and marketing organization, and accelerating our supply chain. Together, these actions help enhance our margin and free cash flow commitments, while improving our ability to capture the growth we see ahead."
• "We are also accelerating changes to our go-to-market model. The goal is to expand coverage across 1,000s of additional clients, where our portfolio is highly relevant and where we see significant wallet share opportunities. While IBM has a strong presence within the Fortune 1000. There is a lot of opportunity beyond this. These changes are aligned with the areas of our business demonstrating strong momentum, including Red Hat, HashiCorp, Confluent, WatsonX, and storage. As AI adoption moves from experimentation to enterprise-scale deployment, we are also investing in more specialized technical and client-facing talent, including forward-deployed engineers."