The Six Five team discusses IBM Q1/24 earnings.
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Transcript:
Patrick Moorhead: IBM, great start, good start to the year. And Dan, I’ll-
Daniel Newman: Do you want me to-
Patrick Moorhead: HashiCorp, I’m going to put HashiCorp HashiCorp onto the side right now. They had a good quarter. Let me break it down. Software on the high end of the model, open ship bookings are freaking on fire, 40%, that’s huge. Red Hat, Linux, and Ansible Automation of double digits. I love hybrid multi-cloud fabrics, Dan, which is why I think I’m going to HashiCorp, but I said I wasn’t going to talk about it, so I’m not going to talk about it. Infrastructure is cool now, baby.
We’ve got Google talking about chips. We’ve got Microsoft talking about chips, and we’ve got IBM, who started it all, with an integrated system with the mainframe, everything included, single stack, and yep, IBM z16 on chip AI acceleration above the bottles. I thought this was interesting, 100 clients are using unchipped Telum AI. I think that is strong. We probably won’t hear about the use cases, because a lot of them are financial institutions, probably doing credit scoring, security, all that jazz. Storage came up.
I don’t remember the last time IBM actually talked about storage on a call. There’s got to be some special IP bits in there, something they’re doing, the spectrum that gives advantage to AI workloads. We’ve got pure storage, we’ve got fast data. They don’t operate really in the big scale system markets, but I’m interested to learn more. Do you hear that, Matt, our storage analyst? Consulting… Down. I’m, sorry, below expectations, but outperform the market.
Probably the most interesting thing that I thought was the call-out for Microsoft Copilot. It was cool and unexpected. We’d heard about how much business they do with AWS and Azure, but the Microsoft Copilot comment was interesting. We got a cumulative number for Watsonx and generative AI, $1 billion, interestingly enough from consulting was a lot of that, but that makes sense. Enterprise IT, C-suite, where do I start and how do I do it? You go to IBM Consulting, which is an on-ramp to IBM software and infrastructure. Really looking forward to IBM Think, and I’ll leave the HashiCorp oxygen in the room for you.
Daniel Newman: So first of all, just as a quick note on the results, because I know we’re coming on the end of our hour here, and gosh, thank you all for spending this time with us. I just couldn’t think of anything you would rather do than be with us this morning. All right, and I’ll say I talked to CFO Jim Kavanaugh for a while, and he was super excited about the HashiCorp deal. He was all lit up about it. Look, when you’re a CFO, you’re a deal maker. I like making deals, too. There’s nothing that puts a little bit more adrenaline in your system than an earnings-day deal of over $6 billion.
Now, the growth was a little short. The revenue, low single digit, 3% in constant currency, 1% growth. I’m dying to see how the market would respond to a 10% quarter. The generative AI business for Watson’s in total are now over $1 billion, so that’s really great. I think what they’re doing for the enterprise AI space continues to be very unique, very robust, and the commitment it’s made to the hybrid AI, hybrid cloud, and AI strategy continues to be very consistent, which is the key. The leadership under Arvind is focus, focus, focus.
And so the company is focused, it’s maintained a growth path, which remember, for a long time it didn’t under previous leadership. Its growth is a little slower than the model, but it sees a path to the model. Kavanaugh and his team have been amazing operators, by the way. Finding margin where margin doesn’t exist, continuing to grow the EPS, and even when the revenue doesn’t quite meet the need, the profit always does, which is good for investors, especially when you’re kind of a value/growth company. I would like to see some accelerated growth across it. It felt like everything, it was like 1%, 3%, 6%, 4%, 9%. Where is the big growth coming from? Even Red Hat-
Patrick Moorhead: Software- with the call-outs on software were-
Daniel Newman: Double digits, and then the backlog on Red Hat was pretty phenomenal, but the strength is there. And then of course HashiCorp, in my mind, is a really great opportunity. Look, Hashi extends… It’s a couple things. One is I see the HashiCorp deal as an opportunistic moment for Red Hat/IBM to play on the sort of continued uncertainty that exists in the IBM VMware space. It further ties together this multi-cloud automation, security, multi-cloud infrastructure requirements. And of course, HashiCorp has always been in many people’s opinions, not fully tapped into its potential.
Now, again, folks on our team, Keith Townsend, Matt Kimball, these are the people that we’re going to be looking for for some really deep analysis on the deal coming up. But as far as I see it, Pat, this ties together the company’s multi-cloud strategy and it increases the dependency that hybrid architectures require some IBM, meaning whether you’re using AWS, whether you’re using Google, whether you’re using Microsoft at the hyperscale public cloud level, the reliance on IBM for that hybrid layer with Hashi only gets more entrenched.
Red Hat plus Hashi is a very sticky sort of relationship that’s going to exist between hyperscale cloud providers and IBM. So, IBM’s in on every deal, and despite the fact that it’s public cloud operating tends to be very vertically focused for financial services and specialty cases, this will tie together and create more need for everybody to be doing business with Big Blue. So, I’m encouraged by the deal, Pat, I want to sort of understand more how it works. I think from Kavanaugh, he told me it will sit in the software business unit under Rob Thomas’ eyes, and the CEO of Hashi will work for Rob. And so, that was a little bit different than Red Hat’s CEO Matt Hicks, which works for Arvind.
So, I’m interested in seeing all that ties together, because in my mind, to some extent, the Red Hat Hashi could almost operate as one bigger, more powerful entity. So, seeing how this works is going to be something to keep an eye on, Pat, but I love the fact that it created additional stickiness for companies that are trying to make their full multi-cloud deployments work, and AI is only accelerating that.
Patrick Moorhead: I’m just going to end anything hybrid multi-cloud fabrics, been talking about it forever. This essentially enables on the side that some people look as less sexy. Infrastructure lifecycle management, security lifecycle management, and essentially being able to jockey workloads between any cloud you want, you want on-prem, you want sovereign cloud, AWS, Google, Azure, Oracle, whatever, and even Terraform was a big part of this, which essentially does code provisioning, depending on which cloud you’re on.
And then you have to have some element of connectivity and networking, which I think is interesting and obviously security that goes in there. There were some snarky comments that I saw that’s showing customer growth had trailed off. I need to double-click into all of this, but I do like the fact that IBM… Any time you can have a hybrid multi-cloud fabric and take a toll, regardless of where you’re running the workload, I love those. I love it for Cisco with what they’re doing on the networking and security cloud. I love it on Red Hat. I like what VMware is doing as well across workloads, storage, networking, and security.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
