IBM (NYSE:IBM) Q4 2025 Earnings call January 28, 2026 05:00 PM ET Company ParticipantsArvind Krishna - CEOJames Kavanaugh - CFOMatthew Swanson - Director and Equity ResearchOlympia McNerney - Head of Investor RelationsConference Call ParticipantsAmit Daryanani - AnalystOperatorWelcome, and thank you for standing by. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the meeting over to ...

IBM (NYSE:IBM) Q4 2025 Earnings call January 28, 2026 05:00 PM ET Company ParticipantsArvind Krishna - CEOJames Kavanaugh - CFOMatthew Swanson - Director and Equity ResearchOlympia McNerney - Head of Investor RelationsConference Call ParticipantsAmit Daryanani - AnalystOperatorWelcome, and thank you for standing by. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the meeting over to ...

Financial Data and Key Metrics Changes - IBM achieved a revenue growth of 6% in 2025, the highest level in many years, and generated $14.7 billion in free cash flow, the highest in over a decade [4][17] - The company reported a 12% growth in operating diluted earnings per share and a 17% growth in Adjusted EBITDA [17][24] - Operating pre-tax margin expanded by 100 basis points, reflecting strong execution and a favorable portfolio mix [17][24] Business Line Data and Key Metrics Changes - Software revenue grew 9% in 2025, with three of four sub-segments delivering double-digit growth rates [5][18] - Infrastructure revenue increased by 10%, driven by the successful launch of the z17 mainframe [18] - Consulting revenue grew 1%, reflecting increased demand for AI services [8][21] Market Data and Key Metrics Changes - Data solutions grew by 19%, driven by demand for GenAI products [20] - Automation solutions saw a growth of 14%, with record bookings for HashiCorp [20] - Red Hat's revenue growth decelerated to 8%, impacted by delays in U.S. federal business deal activity [20] Company Strategy and Development Direction - IBM is focused on becoming a software-led hybrid cloud and AI platform company, with significant investments in innovation and productivity initiatives [4][10] - The company aims to sustain revenue growth of 5%+ in 2026, with a strong emphasis on its software business, expected to grow by 10% [28][34] - Strategic acquisitions, such as Confluent, are seen as key to enhancing IBM's hybrid cloud and automation solutions [10][32] Management's Comments on Operating Environment and Future Outlook - Management noted that client demand remains resilient, particularly in hybrid cloud, AI, and mission-critical infrastructure [6][16] - The company expressed confidence in sustaining growth momentum, with expectations for free cash flow to increase by about $1 billion in 2026 [28][34] - Management highlighted the importance of productivity initiatives, which have already exceeded initial targets [11][33] Other Important Information - IBM's cumulative GenAI book of business reached over $12.5 billion, with significant contributions from both software and consulting [9][31] - The company is advancing its quantum computing initiatives, with plans to deliver a large-scale, fault-tolerant quantum computer by 2029 [15][16] Q&A Session Summary Question: Insights on software growth acceleration - Management expressed confidence in organic growth within the software segment, driven by increased demand for automation and data solutions [40][46] Question: Free cash flow performance and guidance - Management attributed the strong free cash flow performance in 2025 to revenue growth and operating leverage, with a guidance of $15.7 billion for 2026 [49][52] Question: Red Hat's growth trajectory - Management acknowledged the challenges in Red Hat's growth but emphasized the strategic value and ongoing demand for its offerings [57][60]

Summary of IBM's Acquisition of Confluent Industry and Company Involved - **Company**: IBM (NYSE: IBM) - **Acquisition Target**: Confluent - **Industry**: Software-led hybrid cloud and AI platform Core Points and Arguments 1. **Strategic Alignment**: The acquisition of Confluent is a deliberate step in IBM's strategy to become a software-led hybrid cloud and AI platform company, enhancing its leadership in enterprise-grade data and AI [3][4] 2. **Market Opportunity**: The acquisition targets the rapidly growing $100 billion-plus real-time data streaming and event processing market, driven by AI adoption [4] 3. **Confluent's Technology**: Confluent's platform, based on Apache Kafka, is essential for enterprises to access high-quality, trusted data in real time, which is crucial for maximizing AI value [5] 4. **Client Base**: Confluent's solutions are already utilized by major clients such as BMW, Citi, SAP, Bosch, Humana, and Walmart, showcasing the technology's capabilities [5] 5. **Transaction Details**: The acquisition is valued at $11 billion, funded by cash on hand, with approval from both companies' boards and a voting agreement from Confluent's largest shareholders [7] 6. **Financial Impact**: The transaction is expected to be accretive to Adjusted EBITDA within the first year and to Free Cash Flow in the second year post-close [7] 7. **Growth Potential**: Approximately 40% of the Fortune 500 are Confluent customers, with less than 5% generating over $1 million in annual recurring revenue, indicating significant growth opportunities [9] 8. **Synergy Expectations**: IBM anticipates about $500 million in run-rate synergies through operational efficiencies and leveraging its global market reach [9] 9. **Product Integration**: The acquisition will create a smart data platform that integrates IBM's existing products with Confluent's technology, enhancing application integration and AI capabilities [9] 10. **Financial Health**: IBM maintains a strong balance sheet and liquidity profile, with a commitment to its dividend policy, ensuring stability during the acquisition process [11] Other Important Content - **M&A Strategy**: IBM has a consistent approach to M&A, focusing on structurally growing markets aligned with its strategic priorities [3] - **Productivity Initiatives**: IBM has accelerated productivity initiatives, expecting to achieve over $4.5 billion in run-rate savings by the end of 2025, which supports its M&A strategy [10] - **Future Reporting**: Upon closing, Confluent's results will be reported as part of IBM's data within the software segment [11]