IBM(IBM) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q2 2024 was $15.8 billion, with a 4$2.8 billion, up 17% year-over-year [18] - Operating diluted earnings per share grew 11% to $2.43 [18] - Free cash flow for the first half of 2024 was$4.5 billion, up $1.1 billion year-over-year [21] - Adjusted EBITDA increased by more than$350 million in Q2 2024 [20] Business Line Performance - Software revenue grew 8%, driven by hybrid platform and solutions, and transaction processing [19][22] - Infrastructure revenue increased 3%, with IBM Z revenue up 8% [19][30] - Consulting revenue grew 2%, impacted by a pullback in discretionary spending [19][26] - Red Hat annual bookings grew over 20%, with OpenShift bookings up over 40% [22] Market Performance - Strong demand for hybrid cloud solutions, including app modernization, management automation, and generative AI [22] - IBM Z continues to outperform prior cycles, driven by increasing workloads and cybersecurity demands [30] - Distributed infrastructure revenue grew 5%, fueled by demand for data-intensive workloads on Power10 [31] Strategic Direction and Industry Competition - The company's hybrid cloud and AI strategy is driving growth, with generative AI book of business exceeding $2 billion [12] - IBM is investing in open-source AI models, such as Granite, and tools like InstructLab for rapid model tuning [9][10] - The company is expanding its ecosystem with partnerships, including Adobe, AWS, Microsoft, and SAP [16] Management Commentary on Operating Environment and Future Outlook - Technology spending remains robust, but interest rates and inflation have impacted discretionary spending in consulting [7] - The company is confident in the long-term growth of generative AI, with early leadership positioning it for success [12] - IBM raised its free cash flow expectations for 2024 to over$12 billion, driven by strong first-half performance [17] Other Important Information - IBM completed the acquisition of StreamSets and webMethods from Software AG and expects to close the HashiCorp acquisition by year-end [25] - The company is investing in quantum computing, with updates to Qiskit aimed at enhancing stability and efficiency [15] Q&A Session Summary Question: Trajectory of transaction processing growth in 2024 and 2025 [38] - Transaction processing grew 13% in Q2 2024, driven by strong client renewals and large deal performance [38][40] - The company expects mid-single-digit growth for 2024 and remains confident in continued growth in 2025 [41] Question: AI signings and their impact on consulting spend [43] - AI signings are largely a shift from other areas of consulting, with potential for accretive growth in the future [44] - Consulting signings for generative AI reached $1.5 billion, with strong quarter-over-quarter momentum [47] Question: Consulting growth expectations for 2024 [51] - Consulting is expected to grow low-single-digits for 2024, with some pressure from discretionary spending constraints [54] - The company remains optimistic about medium-term and long-term growth in consulting [53] Question: M&A environment and strategy [59] - IBM remains disciplined in M&A, focusing on hybrid cloud and AI, with valuations in the public and private markets being reasonable [60][63] - The company expects the HashiCorp acquisition to close in the second half of 2024 [64] Question: Red Hat business performance [74] - Red Hat bookings grew over 20% in Q2 2024, with OpenShift bookings up over 40% [22][75] - The company expects low double-digit growth for Red Hat in 2024, driven by strong demand for hybrid cloud solutions [76] Question: Open-source AI models and developer-focused strategy [78] - IBM's open-source Granite models are designed to be cost-effective and customizable, with a focus on developer adoption [79][82] - The company believes open-source models will expand the market and allow developers to experiment and innovate [84]