Financial Data and Key Metrics - Revenue for Q3 2024 was 3.8 billion, operating pretax income of 2.30 [14] - Free cash flow for the first nine months of 2024 was 1.5 billion year-over-year [14][17] - Revenue growth for the quarter was 2% at constant currency, with software growth accelerating to 10% [14] - Consulting revenue was flat, while infrastructure revenue declined by 7% [14][15] - Operating pretax margin expanded by 100 basis points, driving 8% operating pretax profit growth [14] Business Line Performance - Software revenue growth accelerated to 10%, driven by Red Hat (14% growth), automation, data and AI, and transaction processing [14][18] - Consulting revenue was flat, impacted by macroeconomic uncertainty and client reprioritization of spending [14][22] - Infrastructure revenue declined by 7%, with hybrid infrastructure down 9% and infrastructure support down 3% [25] - Red Hat's ARR for hybrid platform and solutions reached 100 million to 3 billion, with 6.5 billion since the acquisition [7] - The company is investing in emerging technologies, including quantum computing, with the opening of Europe's first IBM Quantum Data Center [12] Management Commentary on Operating Environment and Future Outlook - The macroeconomic environment remains uncertain, with geopolitical issues, elections, and inflation impacting discretionary spending [5] - The company expects low double-digit revenue growth for software in Q4, led by Red Hat and transaction processing [27] - Consulting revenue is expected to remain flat in Q4, with infrastructure revenue impacted by product cycle dynamics [28] - The company raised its operating pretax margin expansion expectation to 1 point for the full year [29] Other Important Information - The company closed the Palo Alto QRadar transaction, generating a pretax gain of 4.6 billion to shareholders in the form of dividends [17] - The company expects to achieve 3.5 billion in annual run rate savings by the end of 2024 [29] Q&A Session Summary Question: How does the upward inflection in growth for 2025 pan out for Software and Consulting? [33] - Software growth is expected to be driven by Red Hat, generative AI products, and automation, with potential for 3 points of growth [34] - Consulting growth is expected to improve in the second half of 2025, driven by generative AI and strategic partnerships [36] Question: Why should 2025 growth not be viewed as a one-off? [37] - The company has rebuilt its portfolio to be sustainable, with 80% of software revenue on a recurring basis and strong organic growth [40] - Consulting signings are expected to improve, with generative AI projects driving future growth [42] Question: How is the Consulting AI book of business impacting revenue? [44] - The Consulting AI book of business is growing, with 1 billion added quarter-over-quarter, but revenue yield is lower due to longer durations [46] - The company expects the AI pipeline to turn into revenue, driving growth in 2025 [48] Question: What is the sustainability of the 30% software margin? [59] - The 30% software margin is driven by strong revenue growth, productivity initiatives, and strategic focus on hybrid cloud and AI [61] Question: When will Consulting AI projects turn from cannibalizing traditional business to becoming incremental? [62] - Consulting AI projects are expected to start contributing more significantly in the second half of 2025, as the company wraps up short-term discretionary spending pullbacks [65] Question: What is the customer feedback on the Granite models? [66] - Customers appreciate the cost efficiency and practicality of the Granite models, which are 90% more cost-efficient and can be trained in weeks [66][68]
IBM(IBM) - 2024 Q3 - Earnings Call Transcript