IBM CEO Arvind Krishna set the record straight over fears of a long-term tech slowdown, revealing that one-third of the major enterprise deals delayed during a rocky second quarter have since returned to the company.
Speaking on “The Claman Countdown,” Krishna explained that a major semiconductor price increase forced enterprise clients to briefly divert spending toward physical servers.
While that spending shift hurt IBM’s upfront software sales, Krishna said that artificial intelligence remains a major growth driver and that delayed deals are already coming back.
“One-third of all the deals that fell out of the second quarter have already come back. So that gives us a signal, maybe not proof yet, but a signal that that was indeed just a deferral for a few weeks, not a destruction,” Krishna said Thursday.
FIDELITY ESTIMATES RETIREES WILL SPEND $185,500 ON HEALTHCARE AND MEDICAL EXPENSES IN RETIREMENT
The statement comes one day after IBM cut its full-year revenue growth forecast from over 5% down to 4% to 5%.
Earlier this month, IBM issued an earnings warning after prices for chip hardware spiked nearly 60%. The increase prompted many Fortune 100 companies to prioritize purchases of physical hardware, leaving less money for their software budgets. That led many clients to delay software purchases from IBM, contributing to a decline in the company’s stock.
“When those are going up at 60% year over year, people are worried, and that’s the classic inflation that if it’s going to go up that much, I need to buy that now,” Krishna said. “And so I redirect my capex to that side.”
But Krishna said the slowdown was only temporary as companies took time to come through on their software orders. Still, he said the company is working to prevent this in the future by shifting its sales strategy.
CATHIE WOOD SAYS BATTERED SPACEX COULD BECOME ‘MOST IMPORTANT COMPANY IN GLOBAL HISTORY’
While 80% of IBM’s software revenue comes from subscription contracts, 20% comes from upfront purchases, which was what was hit by the client delays.
FLORIDA STOCK RISING: HOW IT BECAME WORLD’S 14TH LARGEST ECONOMY AS BLUE STATES CONTINUE A ‘DEATH SPIRAL’
“We have to focus more on growing the 80 and not depend on the 20% growing fast,” Krishna said.
He emphasized that the company is also doubling down on quantum technology, highlighting its recent acquisition of quantum research lab HRL Laboratories. He said the move positions IBM to lead a new market.
“We think quantum is an incredibly important technology for national security, but also for economic advantage,” the IBM CEO said.
“So now we’re sort of increasing our total investment and increasing the different alternate technologies that we have inside our portfolio, which only then increases the chances that we are one of the winners and are quantified. I think I’m now going to up my estimate to where quantum by the end of the next decade is likely going to be a trillion dollar impact on the industry,” he added.
READ MORE FROM FOX BUSINESS
Read the full article here