IBM(IBM) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported $15.5 billion in revenue for the second quarter, with a 16% year-over-year increase, including nearly five points of incremental revenue from Kindrel [6][7] - Operating pre-tax income was $2.5 billion, resulting in a margin of 16.2%, and operating earnings per share were $2.31 [6][7] - Free cash flow for the first half of the year was $3.3 billion, with over $2 billion generated in the second quarter [8][9] Business Line Data and Key Metrics Changes - Software revenue grew by 12%, driven by hybrid cloud and AI capabilities, with hybrid cloud revenue now representing $21.7 billion, or 36% of total revenue [7][9] - Consulting revenue increased by 18%, with hybrid cloud consulting revenue growing 32% to $8.6 billion [10][11] - Infrastructure revenue rose by 25%, with zSystems revenue up 77% due to the successful launch of the Z16 platform [11][12] Market Data and Key Metrics Changes - The company has over 4,000 hybrid cloud platform clients, with more than 250 added in the last quarter [3][4] - AI adoption is increasing, with 35% of companies now using some form of AI in their business [3][4] - The company expects technology spending in the B2B space to continue to surpass GDP growth [2][3] Company Strategy and Development Direction - The company is focused on executing its hybrid cloud and AI strategy, integrating technology and expertise to accelerate clients' digital transformation [2][3] - Strategic partnerships with firms like AWS and Tech Mahindra are being expanded to enhance service offerings [4][5] - The company is committed to advancing quantum computing technology, with plans to demonstrate a 400-plus-qubit system by year-end [5][6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering revenue at the high end of the mid-single-digit model for 2022, despite currency headwinds and the impact of exiting the Russian market [12][13] - The company anticipates continued strong demand for its solutions, particularly in consulting and hybrid cloud services [10][11] - Management highlighted the importance of sustainability as a business opportunity, with 50% of CEOs prioritizing sustainability investments [5][6] Other Important Information - The company has made over 25 acquisitions in the last two years, with a focus on enhancing its capabilities in AI and cybersecurity [5][6] - The divestiture of healthcare software assets generated a pre-tax gain of about $230 million, but also incurred charges related to stranded costs [7][8] Q&A Session Summary Question: Concerns about Red Hat business deceleration - Management remains confident in the Red Hat business, expecting growth in the upper teens, with strong demand continuing [15][16] Question: Free cash flow guidance - The company adjusted its free cash flow guidance to about $10 billion, citing impacts from exiting the Russian market and currency fluctuations [17][18] Question: Expectations for $35 billion in free cash flow through 2024 - Management reaffirmed commitment to the $35 billion free cash flow target, with confidence in achieving this goal [18][19] Question: Dynamics affecting consulting business - Demand for consulting remains strong, with a focus on capturing growth through strategic investments in skills and capabilities [23][24]