International Business Machines (IBM) Q2 FY26 earnings call: guidance and Q&A

Is the Q2 shortfall due to deferred or destroyed demand, and what gives confidence in maintaining FCF guidance?

Arvind stated that 1/3 of the slipped deals have already closed in Q3, indicating deferral. Jim explained FCF confidence comes from strong adjusted EBITDA, front-loaded CapEx/cash taxes, and strategic inventory build for H2 demand.

“The fact that 1/3 have already closed in the first 3 weeks gives us an indication, not yet full evidence, but a good indication that this was deferral and not destruction.”

asked by Amit Daryanani · answered by Arvind Krishna

Reconcile the 1-point revenue guide cut with the Q2 miss and the partial closure of slipped deals.

Jim explained the 4-5% revenue guide reflects a prudent low end (anchor) for profit/cash stability and a high end that accelerates growth. He detailed software scenarios (80% recurring accelerating, 20% transactional with discounted historical closure rates) and infrastructure momentum.

“The low end of the range we put in as an anchor, an anchor so that we can show the investment community the level of productivity and operating leverage we have in this company that allows us to maintain earnings and maintain free cash flow at that low level.”

asked by Brent Thill · answered by James Kavanaugh

Clarify how TPP and mainframe will improve from negative Q2 performance to support the 4-5% revenue guide, and if IBM still targets double-digit long-term software growth.

Arvind affirmed conviction in double-digit long-term software growth, driven by the accelerating 80% recurring business and higher-growth acquisitions. Jim detailed mainframe confidence from 130% program-to-program performance, capacity workload, TCO advantage, and AI-driven value, expecting TP to be a 2027 growth vector.

“We and I have complete conviction in the double-digit long-term software growth, let me be clear about that.”

asked by Benjamin Reitzes · answered by Arvind Krishna

What catalyzed the recapture of slipped deals, and what is happening to the 15% of installed MIPS not stable/growing?

Arvind attributed deal slippage to clients reallocating budget to other infrastructure with extreme price increases, but then realizing the mission-critical nature of the deferred IBM deals. He noted IBM held prices in July. The question about the 15% MIPS was not directly addressed in the provided transcript.

“I think that our teams are a bit more reluctant and less aggressive than others in portraying some of those increases in hardware that are coming into the market.”

asked by Fatima Boolani · answered by Arvind Krishna

Why did the organic data segment underperform, especially given bullish comments on Confluent and the AI build-out?

Arvind explained that data software was also impacted by the CapEx-sensitive deal slippage, as it's often coupled with hardware purchases. He expects data to perform well in the next 12 months, noting clients prioritize near-term value, which sometimes means other offerings like Confluent.

“So in the run by shooting, data gets hurt because people are buying less of it and that impacts that.”

asked by Erik Woodring · answered by Arvind Krishna

Discuss the size of the opportunity for Project Lightwell and its importance for protecting the open-source ecosystem.

Arvind described Lightwell as a multi-billion dollar opportunity, leveraging AI models to patch open-source vulnerabilities, even without human expertise. He highlighted the speed of remediation (7,500 packages in 3 weeks) and the flywheel effect of client adoption.

“We believe that it's in the multiple billions of dollars, whether it turns out to be that the TAM or the open source protection here is [$5 billion or $10 billion or $15 billion,] it's in that range of billions of dollars.”

asked by Matthew Swanson · answered by Arvind Krishna