International Business Machines Corp at Citi Global TMT Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ryan Potter - Citigroup Inc. - Analyst : Yes, so you've had a lengthy career now with IBM and you're currently leading in the consulting in Americas, as I just mentioned. Can you share about your background of the business you're running today?

Question: Ryan Potter - Citigroup Inc. - Analyst : Great. And speaking of technologists, there's a career technologist leading IBM now and Arvind. Maybe you could touch on some of the changes he's made to IBM as a whole and consulting in terms of strategic direction, I guess go-to-market. Anything you can comment in terms of changes under Arvind.

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. And consulting also just recently made a leadership change with Mohamad Ali taking over. So maybe you could touch on what he brings to the table and if you foresee any strategic changes going forward or just more of a continuation of Arvind's strategy we've seen in recent years.

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. And yeah, we'll touch on the software stuff a little bit later, [but especially into] demand, IBM has characterized the demand environment as strong for technology transformations. We've heard that from some peers in the market as well. So I guess, what do you hear from clients today REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 5:20PM, IBM.N - International Business Machines Corp at Citi Global TMT Conference that's driving that kind of core transformation demand? And then just in terms of how are clients reacting to dictating macro uncertainty, where you're seeing discretionary spending, just elements like that.

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. On the discretionary side, what would take for that market to open up a little bit more in terms of enterprise spending? Is it more clarity on interest rates, more sustainability of interest rates actually coming down, getting past election cycles? Just all of the above there?

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. And maybe we could touch a little bit on visibility because the consulting outlook has moved a little bit as we move through the year and because of that discretionary element you just highlighted, but can you just touch on the visibility we have into the consulting business? I don't know if it's -- you can talk about contract durations or anything like that. And just in terms of the current outlook, just the wider assumptions that are embedded into that consulting outlook. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 5:20PM, IBM.N - International Business Machines Corp at Citi Global TMT Conference

Question: Ryan Potter - Citigroup Inc. - Analyst : Okay. In terms of macro, I guess, is there any assumptions for people to think through in terms of the second half of the year? Or are you assuming kind of more of the same at this point?

Question: Ryan Potter - Citigroup Inc. - Analyst : Okay. I guess just moving towards the high level of IBM consulting and overall market in general, what would you say kind of differentiates consulting most versus some of the peers in the market?

Question: Ryan Potter - Citigroup Inc. - Analyst : That's great. Maybe double clicking on the strategic partnerships element. I know consulting's over 40%. I think up to 40% of revenue comes from strategic partnerships currently, and that's -- you worked that way up over recent years. So maybe you could dive into what you've done to work up that piece of revenue. Is it just gaining more certifications with these partners? Is it working on more joint market strategies with these partners and going forward there's an opportunity to keep pushing that beyond 40%?

Question: Ryan Potter - Citigroup Inc. - Analyst : And there's opportunities with other partners to that $1billion level over time. I know Arvind and Ginni had mentioned that as well too.

Question: Ryan Potter - Citigroup Inc. - Analyst : Great. You touched on IBM garages earlier, but maybe you could touch on industry focus. And I know in recent years, you focused on also experiential selling and kind of pivoting your go-to-market. Can you just comment on how the go-to-market has evolved and how the experiential selling has actually maybe helped elevate kind of the demand you're seeing [inflowing]?

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. Just maybe shifting gears towards everyone's favorite topic, GenAI and AI broadly. I mean, you mentioned one of IBM's consulting's differentiation is technology, leveraging IBM's technology. You touched on AI earlier. But could you dive into, I guess, a little bit of maybe examples of how IBM is helping clients leverage AI and GenAI broadly today?

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. And there on the last earnings call, it was mentioned that IBM was on $2 billion of bookings of GenAI, since kind of the rise of GenAI. And you guys have released watsonx's platform, and three-quarters of that has been in consulting [run]. But has that three quarters of that $2 billion been largely in those four areas you've talked about? And in terms of the vast maturity of projects, is it still more kind of experimentation type stuff, proof of concept? Are you seeing stuff actually move to more production stages?

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. And maybe you could dive a little bit more into -- you talked about consulting [manage] multiple times, but just in terms of how it could help the average consultant. Is it more just making them more productive, making the work they do potentially more accurate as well. Does it potentially also reduce the, I guess, amount of consultancy need on a project? Or is it more just, it can lead into quicker inflow of projects coming in as well, as they're being more productive on the projects they're working on?

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. And in terms of the focus on strategic partnerships, has it changed at all with GenAI? Is it kind of lessons learned with the hyperscalers you also apply into how you bring up Gen AI partnerships, whether it be Consulting Advantage, or [any other ways that kind of point to] GenAI?

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. So we spent a lot of time on AI. I know since Arvind's come, the focus has been on AI, but hybrid cloud as well, and hybrid cloud is arguably the bigger piece of revenue where you've kind of taken advantage over the recent years. So you can sort of dive in a bit more into consulting's role with hybrid cloud, like [were then] client pain points in terms of migrating to the cloud, what inning are we in in terms of client adoption of the cloud? And I guess, what's the opportunity going forward with the consulting and the hybrid cloud? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 5:20PM, IBM.N - International Business Machines Corp at Citi Global TMT Conference

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. I guess just shifting to [clients a little bit], we can talk about two sides of it: the demand side and also what you guys are doing internally. But for the demand side, with clients focused on cost efficiencies and savings, I guess how's IBM placed to help clients on that path? I mean, historically, would you say IBM has better capabilities than maybe some large providers in terms of helping clients on the cost efficiency path?

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. Probably going to consulting margins, they lagged where you might see in some of the peers. So maybe you could touch on why you believe margins are lower than some peers. And maybe the flow through, how consulting can lead into maybe higher margin opportunities in software and some other parts of IBM that you're willing to accept lower margins? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 5:20PM, IBM.N - International Business Machines Corp at Citi Global TMT Conference

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. Maybe shifting over to M&A, most of M&A recently has been more directed towards the software side of IBM. Maybe you can tell us a little bit about IBM and IBM consulting's specifically approach to M&A and appetite broadly for larger deals?

Question: Ryan Potter - Citigroup Inc. - Analyst : Anything you'd call out in terms of the current state of the AI pipeline in terms of consulting in terms of what's out there for capabilities that might be interesting, and also from a valuation standpoint, are you seeing any disconnect between public and private valuations at all?

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. So work on how it helps the IBM platform as a whole broadly.

Question: Ryan Potter - Citigroup Inc. - Analyst : Got it. So I guess there we can wrap [it up in this question] in terms of where you're most focused on in terms of the key to continued success of IBM consulting, what we can look forward in the next couple of years?

Question: Ryan Potter - Citigroup Inc. - Analyst : Great. Thanks again for a very helpful conversation, Kelly. I appreciate it.