IBM Q4 earnings call: Consulting drives AI revenue
CEO Krishna 'pleased' with growth across software and consulting, nascent AI platform business
Not one to miss out on a year of AI-themed results presentations, the topic took up a significant chunk of IBM's Q4 earnings call.
Big Blue delivered 3 per cent revenue growth over the quarter, while software revenue specifically was up 2 per cent. CEO Arvind Krishna highlighted the progress made in recurring revenue and IBM's consulting book, the latter of which grew 5.5 per cent over the quarter.
AI strategy and Watsonx
As expected, a significant focus of the earnings call was IBM's progress in AI.
Krishna highlighted the successful launch of watsonx, IBM's flagship AI and data platform. Watsonx.governance, introduced in the fourth quarter, drove a substantial portion of IBM's book during the period, with Krishna stating: "Last quarter, I shared with you that our book of business in the third quarter specifically related to generative AI and watsonx was in the low hundreds of millions.
Since then, demand continues to increase and our book of business in the fourth quarter is roughly double the third-quarter amount.
"We continue to have thousands of hands-on client interactions, including an acceleration in pilots that were completed during the quarter. Software transaction revenue and SaaS ACV was approximately one-third of our book of business related to generative AI in the fourth quarter, and two-thirds was consulting signings."
IBM's AI approach is to offer what Olympia McNerney, global head of investor relations termed a 'multi-model' AI strategy.
With its firm foothold in the space via watson, the company believes in clients leveraging a combination of models, including IBM's, open source, proprietary, and those from other companies, McNerney highlighted.
Consulting business strength and strategic client wins
Despite an uneven macro environment, IBM's consulting business demonstrated durable revenue growth throughout the year.
This is significant, as the company's early wins with AI have been largely consulting-driven, in line with analyst predictions.
In January, a report by investment firm Bernstein report suggested that AI has likely brought "a very modest contribution to date," with the portion of IBM's book of business relating to generative AI in the "low hundreds of millions."
"We continue to believe that it is early in the AI story, with enterprises still in the exploratory phase," according to the Bernstein report.
"It remains to be seen how incremental AI budgets will be, and to what extent IBM will be able to sustainably differentiate itself from its peers in terms of its AI capabilities and overall AI business."
Strategic partnerships with industry leaders such as SAP, AWS, Microsoft, Salesforce, and Adobe were also highlighted during the call.
Collaborations, such as embedding watsonx into Adobe's platform, deepen these partnerships and showcase IBM's relevance in the evolving technology landscape.
Software and infrastructure performance
CFO Jim Kavanaugh noted a slightly larger than expected drop in transactional revenue, but pointed to 'encouraging' future growth indicators.
IBM's software segment experienced 2 per cent growth, driven by recurring revenue and transaction processing.
The hybrid platform and solutions, including Red Hat, ticked up just 1 per cent.
"In Red Hat, revenue performance was similar to last quarter as we continue to see dampened growth in consumption-based services, Kavannaugh commented.
"Our future growth indicators are encouraging. Red Hat annual bookings were up 17 per cent, including double-digit bookings growth across all three key offerings: RHEL, OpenShift, and Ansible.
Red Hat's annual bookings were up 17 per cent, and the platform-based approach resonated well with clients.