International Business Machines : Prepared Remarks (95 KB) pdf

Introduction

Thank you. This is Patricia Murphy, and I'd like to welcome you to IBM's fourth quarter 2021 earnings presentation. I'm here with Arvind Krishna, IBM's Chairman and Chief Executive Officer, and Jim Kavanaugh, IBM's Senior Vice President and Chief FinancialOfficer. We'll post today's prepared remarks on the IBM investor website within a couple of hours, and a replay will be available by this time tomorrow.

I'll remind you the separation of our managed infrastructureservices business, Kyndryl, was completed on November 3rd. As a result, our income statement is presented on a continuing operations basis. Our results also reflect the incremental revenue from the new commercial relationship with Kyndryl. Because this provides a one-time lift to our growth, we will provide the contribution to our revenue growth for the next year. In the spirit of providing additionalinformation to investors, our presentation also includes non-GAAP measures. For example, all of our references to revenue and signings growth at constant currency. We have provided reconciliation charts for these and other non-GAAP measures at the end of the presentation, and in the 8-K submitted to the SEC. Finally, some comments made in this presentation may be considered forward looking under the Private Securities Litigation Reform Act of 1995. These statements involve factors that could cause our actual results to differ materially. Additional information about these factors is included in the company's SEC filings.

So with that, I'll turn the call over to Arvind.

CEO Perspective

Thank you, Patricia. And thanks to all of you for joining us today.

Our fourth quarter results reinforce our confidence in our strategy and model. With solid revenue growth, we are on track to the mid-single digit trajectory we had laid out in our investor briefing last October. The trend we see is clear. Across industries, clients seetechnologyas a major source of competitive advantage. They realizethat powerful technologies, embedded at the heart of their business, can lead to seismic shifts in the way they create value. This reality of technology being about a lot more than cost will persist, and explains why clients areeager to leverage hybrid cloud and artificial intelligence to move their business forward.

Our fourth quarter results illustrate the strong client demand we see in the marketplace for our technology and consulting. IBM Consulting again had double-digit revenue growth, as our ecosystem play continues to gain momentum. Software revenue growth reflects strength in Red Hat and our automation offerings. Infrastructure had a good quarter, especially with regards to IBM Z and storage.

Over the last year and a half, we have taken a series of actions to execute our hybrid cloud and AI strategy and improve our revenue profile - optimizing our portfolio, increasing investments, expanding our ecosystem and simplifying our go to market. As we start to yield benefits from these actions, our constant currency performance improved through 2021. Our most significant portfolio action was the separation of Kyndryl. You'll remember we had initially expected the spin by the end of the year, and we completed it in early November. As we discuss our results, we'll focus on the new basis and structure that encompasses today's IBM.

As we look to 2022, we expect mid-single digit revenue growth before Kyndryl and currency, and ten to ten-and-a-half billion dollars of free cash flow for the year - both of these are consistent with our medium-term model.

Hybrid Cloud & AI Progress

Let me now spend a few minutes on what we are seeing in the market, how we address it, and the progress we are making.

We are seeing high demand for our capabilities in several areas. Clients are eager to automate as many business tasks as possible,especially given the new employee demographics. This dynamic is likely to play out over the long term. They are also using AI and predictive capabilities to mitigate friction in their supply chains. Cybersecurity remains a major area of concern, as the cost of cybercrime - already in the billions of dollars - rises each year. As clients deal with these challenges and opportunities, they are looking for a partner they can trust and who has a proven track record in bringing about strategic transformation projects. This is why our strategy is focused on helping our clients leveragethe power of hybrid cloud and AI. Hybrid cloud is about providing a platform that can straddle multiple public clouds, private clouds, and as-a-service properties that our clients typically have. Our approach is platform- centric, and the platform we have built is open, secure and flexible. And, it provides a solid base for the multiplier effect across software and services for IBM and our ecosystem partners.

It starts with Red Hat, which offers clients unique softwarecapabilities based on open-source innovation. Our software,which has been optimized for that platform, helps our clients apply AI, automation and security to transform and improvetheir business workflows. Our consultants deliver deep business expertiseand they co-create with our clients to advance their digitaltransformation journeys. And our infrastructure allows clients to take full advantageof an extended hybrid cloud environment.

This strategy, along with the differentiated capabilities we bring to bear to our clients, have led to an increase in platform adoption and new business opportunities across the stack. We now have morethan 3,800 hybrid cloud platform clients, which is up 1,000 clients from this timelast year. IBM Consulting continues to help drive platform adoption - with about 700 Red Hat engagements for the year. Clients like Dun & Bradstreet, National Grid, AIB and Volkswagen have all recently chosen IBM's broad hybrid cloud and AI capabilities to transform their processes and move their business forward.

As I look back on the year, we had good success in broadening our ecosystem to drive platform adoption and to better respond to client needs. During our investor briefing, we talked about strategic partnerships that will yield billion-dollar businesses within IBM Consulting. As we move towards that, we had more than 50 percent revenue growth this year in partnerships with AWS, Azure and Salesforce. This adds to the strong strategic partnerships we have with others such as SAP, Oracle and Adobe. We're continuing to broaden our ecosystem reach. In the fourth quarter, we announced an expansion of our strategic partnership with Salesforce to run MuleSoft integration softwareon Red Hat OpenShift. We also created a host of new consulting services with SAP to help clients accelerate their journey to S/4Hana. Together with Deloitte, we announced DAPPER, an AI-enabled managed analytics solution. And we have expanded our partnership with EY to help organizations leverage hybrid cloud, AI and automation capabilities to transform HR operations. We have also recently announced a host of new strategic partnerships with Cisco, Palo Alto Networks, and Telus - all focused on the deployment of 5G, Edge and network automation capabilities.