The Six Five team discusses IBM Earnings.
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Transcript:
Daniel Newman: Let’s not forget about IBM. Big Blue had a good quarter.
Patrick Moorhead: They did.
Daniel Newman: We had the chance, by the way, you and I got to spend some time with Arvind at the F1 race.
Patrick Moorhead: It was good.
Daniel Newman: It was nice to see him.
Patrick Moorhead: Yeah, that was good.
Daniel Newman: The picture’s on the internet in case anybody doubts it. I’m joking. We wouldn’t post it.
Patrick Moorhead: I know.
Daniel Newman: And then we also had a call with CFO Jim Kavanaugh-
Patrick Moorhead: That’s right.
Daniel Newman: … who’s been gracious each quarter to kind of walk us through what’s going on.
Patrick Moorhead: Yeah, I appreciate his time.
Daniel Newman: Let’s talk about two things here. One is this company operationally, financial and operationally is just rock solid. Creating cash, expanding margin. When you’re growing in single-digit percentages, you have to operate really well. Having said that, the company’s been really on the money as it’s pertained to its strategy around AI. And that to me was kind of the highlight of the quarter. Things like hybrid cloud, consulting software, parts of Red Hat, all of it, it’s like it grew, it grew, it grew. Z had a good quarter. There were some offsets in that particular unit.
Patrick Moorhead: It did. I mean, it shouldn’t even be doing well.
Daniel Newman: Unexpectedly doing well.
Patrick Moorhead: It’s like mid-cycle.
Daniel Newman: But Watsonx is the story.
Patrick Moorhead: It is.
Daniel Newman: And they’re talking now in the hundreds of millions. They’re talking now high customer adoption, GA early, which is really impressive. They did their legal indemnification now where customers can adopt it faster, taking risk off the table, which I think is really important. If companies want to get on the bandwagon of generative AI, they want to be sure that if there’s risk, that they’re not in it alone. And so with these partnerships, I think that’s really compelling. When it comes to pure enterprise AI, IBM’s story, very compelling.
Patrick Moorhead: Right.
Daniel Newman: Overall, though, my take on it is this, is ramping the AI customer growth, being able to share the customer success stories. Of course, everybody would love to see growth go into double digits, Arvind more than anybody and then followed by Jim. But steady, steady, steady in the enterprise game does tend to win the race. And IBM is finding its sea-legs as a partner to the cloud companies, as a partner to the prem companies, consulting to security, data to governance. And even like with FinOps right now when companies are looking how to spend, and they closed that deal early too.
Patrick Moorhead: Yeah, that was a good acquisition.
Daniel Newman: It was a good acquisition with Apptio. Is it Apptio?
Patrick Moorhead: Apptio. Yeah.
Daniel Newman: Yeah. So off we go, rock and roll. But I thought it was a good quarter for IBM, encouraging quarter. What do you think?
Patrick Moorhead: Yeah, that was a really good analysis, Dan, and I’m going to hit two things. So first of all, I just want to remind everybody that IBM was the first enterprise company to go GA on a full AI platform, Watsonx. Watson AI, Watson Data, and Watson Governance. And it’s very rarely that you hear IBM and first-to-market in the same sentence. This was not a fake GA either, right? I asked for the spreadsheets of which features by what country. Is this thing really GA? It is very much GA. So all the way from training to solutions to consulting, it’s all right there. And the second thing… Well, actually it’s funny, I’m going to add three. But I also want to remind people-
Daniel Newman: Of course you are.
Patrick Moorhead: … that IBM was first to indemnify its customers not only for copyright, but also for the programming underneath. Okay? And then what happened? We saw Microsoft and we saw Google, by the way, still haven’t done the indemnification on the programming. It’s all about the copyright. So a big differentiator. I want to hit on Red Hat, right? I think both you and I, when we first got the release, we saw-
Daniel Newman: 8%.
Patrick Moorhead: … 8% for Red Hat. And kind of digging in there, and this came out in the call that, in fact, recurring product revenue is 19%. OpenShift and Ansible is 40% growth.
Daniel Newman: Much better.
Patrick Moorhead: And RHEL, the core-
Daniel Newman: Enterprise Linux.
Patrick Moorhead: … exactly, is double digits. And it was the consulting that brought them down. Now, I still don’t fully understand why consulting around Red Hat tanked. It’s certainly not a lack of what I would say desire to go to the hybrid multi-cloud. But I don’t know what happened. But it wasn’t all doom and gloom. I think if you peel back the data, Red Hat actually had a very good quarter.
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.
