IBM CEO Arvind Krishna: AI, Hybrid Cloud ‘Work Together To Drive Business Outcomes’

IBM CEO Arvind Krishna touts artificial intelligence and hybrid cloud as ‘transformative technologies’ and says the company is well positioned to take advantage of continued investment in these areas by customers.

IBM’s leadership expressed confidence in their bets on artificial intelligence, automation and hybrid cloud paying off in 2023 on the vendor’s Wednesday earnings call for the fourth quarter of its fiscal year, which ended Dec. 31.

IBM Chairman and CEO Arvind Krishna pushed against other vendors’ assertions of new business slowing after customers invested heavily in digital tools during the height of the pandemic.

The company also announced layoffs alongside Wednesday’s earnings, but the thousdands of IBM employees getting cut are supposed to be related to the Kyndryl spinoff and health-care divestiture and not based on 2022 performance or 2023 expectations, an IBM spokesperson told CRN in an email.

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IBM Fourth-Quarter Earnings

Multiple media reports put the number of laid off workers at 3,900—1.5 percent of a global workforce of 260,000. The latest public employee disclosure from IBM showed about 282,000 workers at the end of 2021. Assuming the head count is closer to that total, the layoffs would number between 2,820 people and 4,230 people.

CRN has also reached out to Red Hat to see if the IBM subsidiary is part of the layoffs.

New-Business Slowdown?

When asked by an analyst about Microsoft and F5 reporting on new business slowing compared with renewals, Krishna said IBM hasn’t experienced that, explaining that from IBM’s perspective, “new application” work includes expanding an existing deployment and “new development” includes new applications on a cloud, refactoring and integration with other applications.

“For us, I don’t really see that,” Krishna said. “I see that our clients do want to do new development.”

“The reason that we are remaining in this optimistic frame of mind—we have no consumer business. I agree that our clients may have a consumer business, but we don’t have that directly. And so I think consequently, we might be seeing a little bit different subset of the economy than those who might have a large direct exposure to a consumer business.”

Krishna called hybrid cloud and AI “the two most transformative technologies for business today” and said that IBM is well positioned to take advantage of continued investment in these areas by customers.

AI should contribute $16 trillion to the global economy by 2030, he said. And hybrid cloud is more valuable than a single public cloud because users can access multiple clouds and work on-premises and at the edge.

“These technologies work together to drive business outcomes,” Krishna said. “Hybrid cloud is where the world is going. Containers are the preferred destination for applications. Hybrid cloud offers more value than relying on a singular public cloud. It enables organizations to drive business value across multiple clouds, on-premises or at the edge. This includes scale, security, ease of use, flexibility of deployment, seamless experiences and faster innovation cycles.”

Krishna also highlighted IBM’s aggressive partnering strategy as helping in 2023. He referenced the company’s new Partner Plus Program and said that more IBM and Red Hat offerings are available on the marketplaces of hyperscalers such as Amazon Web Services and Microsoft.

Business with strategic partners SAP, Microsoft and AWS all brought in more than $1 billion in revenue for the year, he said.

IBM’s AI Strategy

When asked about how IBM will be a leader in the AI market with Micorosft and OpenAI capturing headlines for the ChatGPT text-generating program, Krishna said that the company will focus on enterprise and government automation.

“If you can automate the drive-thru and order taking for quick-serve restaurants, that’s an example of what can happen,” he said. “If we can get deflection rates of 40, 50, 60 percent at everyone’s call centers, that’s a massive operational efficiency for all of our clients. If we can help retirees get their pension through interacting with a Watson-powered AI chatbot, that is an enterprise use case where all of these technologies come into play. By the way, all my three examples are real clients, where we are resulting in anywhere from hundreds to thousands of people, the efficiency, for each of these clients.”

For customers that are experiencing some headwinds in 2023, most believe “they are going to emerge stronger” and seek automation services, Krishna said.

“In order to emerge stronger, that means they’re all deploying technology to help offset wage inflation, cyber issues, supply chain challenges and all the demographic shifts—meaning there is just fewer skilled people to hire,” he said.

IBM itself has used AI to improve its processes, including promotions, people movement, quote-to-cash and answering customer questions.

AI operations (AIOps) is another area where IBM expects to dominate, Krishna said.

“Our AIOps portfolio there really advantages us,” Krishna said. “And I believe we are in a unique position because we help our clients in an environment across multiple public clouds and on-premises and with their private clouds in that space.”

IBM Fourth-Quarter And Full-Year Results

IBM reported $16.7 billion in revenue during the quarter, up 6 percent ignoring foreign exchange. It generated $5.2 billion of free cash flow. IBM CFO Jim Kavanaugh told analysts that foreign exchange cost the company more than $1 billion in revenue.

IBM’s software revenue brought in $7.3 billion during the quarter, up 8 percent year over year ignoring foreign exchange.

Within this segment, revenue for hybrid platform and solutions grew 10 percent year over year. Hybrid platform and solutions has annual recurring revenue of $13.3 billion, Kavanaugh said.

Hybrid cloud revenue for all of software is more than $9.3 billion over the last year, up 16 percent, Kavanaugh said.

Revenue from Red Hat, which is part of the hybrid platform, grew 15 percent. IBM did not break out exact revenue figures. But Kavanaugh told analysts that Red Hat’s OpenShift hybrid cloud platform has $1 billion in annual recurring revenue.

OpenShift and Red Hat’s Ansible subsidiary grew double digits, he said.

Automation grew 9 percent. Data and AI grew 8 percent, and security grew 10 percent.

Revenue for IBM’s transaction processing business—still part of the software segment but separate from hybrid—was up 3 percent year over year ignoring foreign exchange. Counting foreign exchange, it was down 3 percent year over year.

IBM Consulting brought in $4.8 billion during the quarter, up 9 percent year over year ignoring foreign exchange. Counting foreign exchange, it only grew by a half percent. IBM’s software and consulting businesses make up about 70 percent of the vendor’s revenue.

Over the last 12 months, IBM Consulting brought in $9 billion in hybrid cloud revenue, Kavanaugh said. That is an increase of 23 percent year over year.

IBM Consulting revenue from strategic partners grew by double digits, he said. Strategic partnership bookings grew 50-plus percent. Revenue from AWS and Microsoft Azure more than doubled.

Within consulting, business transformation grew 7 percent year over year ignoring foreign exchange. With foreign exchange, it actually decreased by 1 percent. IBM did not break out revenue figures of the business lines within its consulting segment.

Technology consulting grew 10 percent year over year ignoring foreign exchange and 1 percent counting foreign exchange.

And application operations grew 12 percent year over year ignoring foreign exchange and 2 percent counting foreign exchange.

IBM’s infrastructure segment saw $4.5 billion in revenue, year-over-year growth of 7 percent ignoring foreign exchange.

Hybrid infrastructure grew 11 percent ignoring foreign exchange and 6 percent counting it. Within hybrid infrastructure, IBM z Systems grew 21 percent ignoring foreign exchange and distributed infrastructure grew 5 percent.

Infrastructure support was flat year over year ignoring foreign exchange. Counting foreign exchange, it fell 8 percent year over year.

For the full year, IBM saw $60.5 billion in revenue, up 12 percent year over year ignoring foreign exchange. About 4 points came from sales to Kyndryl. Hybrid cloud brought in $22.4 billion in revenue, up 17 percent year over year.

IBM ended the quarter with $8.8 billion of cash on hand. The company has $12.9 billion in debt.

IBM’s stock traded at $137.98 a share after hours, down about 2 percent after market close.