International Business Machines (IBM) 19 Apr 232023 Q1 Earnings call transcript

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded.

Now I will turn the meeting over to Ms. Patricia Murphy with IBM. Ma'am, you may begin.

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

To measures. includes certain provide non-GAAP additional information to our investors, our presentation

at of our references constant are currency. all growth example, For revenue to

end the the We other reconciliation non-GAAP to have investor presentation charts and our at provided posted these for measures of website.

is Finally, some could this filings. SEC XXXX. presentation Reform considered about results be included These Private may factors materially. our of cause the Securities in comments made differ the Act that in forward-looking information to under company's factors actual statements involve More Litigation these

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

you us. Thank joining for

takeout, transformations, cash and workflows, Our their to results recently, constant year needs future. line free turn was our Software to digital by Consulting good applications, productivity model clients clients IBM today's prioritizing midterm digital currency, with continue positioning cloud are Performance clients focus start continue to and their cost accelerate We them quick automate that led first as to their secure flexible on business demonstrate in growth at and address the mid-single-digit revenue to More growth for a while them quarter in create that had and hybrid with flow. and modernize environments. projects transformation help the returns.

in deceleration in robust the priorities we offerings these seeing remains growth the some for States. previous our demand While from United solid, that levels, especially support Consulting are

helps competitive and demographic goals. shift, as source of see sustainability them is in productivity, cybersecurity, the clients a which inflation, our advantage. continue to chain supply and of important especially technology issues scale face Globally, enhance fundamental Technology

growth supports this our revenue year. expectations the of for All

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started have confidence ability our to cash which flow our our of results, full to this We see us pay in year in achieve gives back free some objectives.

spend me have the minutes a in execution few Let of on made strategy. progress the our we

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clients society. continue are to leveraging agendas. on our that also projects advance have to Many expertise impact We technology a engage and their sustainability in positive

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enabling have changes with flow work, our last and and I'll needs revenue in we to deliver sustainable years, portfolio the conclude continued we confident over priorities growth. by are the saying free on focus business to our are our together clients. that three strategy, aligning This cash to the our of made us productivity,

hand now insight performance and who into Jim expectations. over it I'll to will more offer our

delivered quarter. free first of Thanks, Arvind. cash with the I'll $X.X billion highlights and $XX.X operating of $X.X revenue, in pre-tax flow. billion billion share financial start per income, $X.XX operating of the We earnings of

quarter our businesses the than $XXX X by at we revenue constant suggested rates have revenue reported X about divested. includes ago. XX That Currency for Our would points. up over impact from impacted more spot currency. days million That was over X.X% rates growth the point of is

Consulting. my this quarter As comments growth on and led Revenue currency. Software by was always, constant focus I'll

was vectors our now up are revenue our three-quarters and of about Consulting represent X%. growth revenue. nearly Software up X% annual These and

Across revenue three of in growth All led with business, Pacific. grew, infrastructure of high both is growing our in single-digit and geographies mid-single-digit flat software more revenue at by is Our was Systems. Asia than with EMEA recurring, high-value IBM's strength our z continued rate. half which

overall. points. points. pre-tax We Operating XX excluding basis our and expanded basis the the Operating margin gross quarter. rebalancing, profit expanded up a metrics for in expanded margin margin at impact Looking portfolio XXX with workforce all was mix of segments strong gross XX%, income,

January, we were address and million. planning from You'll recall anticipated our remaining stranded actions charge we to costs of back about portfolio mentioned in a $XXX I

in we As function. of a to first and this we took This support charge second expect indirect rebalancing the we million primarily in quarter. our addresses complete executed action quarter, the charge plan, workforce $XXX

provide ongoing longer consistent operational profit in view We charges of profile. workforce of our our rebalancing are segment measure results including our with no segment to a

the absorbed million level, and significant headwind. income growth points profit by activity, margin pre-tax The operating down and impacted XX hedging translation Within XX IBM PTI margin of year-to-year. combination basis operating points. and was rebalancing the a $XXX about At was operating our currency down we performance, basis workforce including pre-tax X%, margin by

PTI past, the in our margin, server segment. year-to-year to discussed product-based point businesses. is our primarily the which change provides essentially in benefit I've impacts basis that, Mitigating included operating lives useful this equipment a XX As infrastructure our and of in networking

using same both profit of initiatives. way their Taking in our and We've benefits IBM capabilities. ongoing IBM, IBM's third-party much with transformation, clients client back this we're mix zero. in digitally transforming been up helping performance level, as from the productivity and improvements it business quarter Think IBM a

efficiencies and application G&A reimagining by infrastructure driving way we environments as end-to-end well and the redesigning our our as work. are business includes processes. transforming optimizing We This

Let realizing a examples. Hat to error, Pay. tasks average doing talent, avoiding are center more a applying on simplifying we end-to-end XX reduced XX%. reducing RPA, from running of standardizing cost our with We're running processes. cloud Across like portfolio application XX% hybrid to IBM's HR We've of value of by Source IT me finance our that and AIOps, like thousands application automated processes areas AI we're global legacy We've business OpenShift. human give and by quote the an to the processes scale the we're environment, environment in and deploying moving environment at been reengineer Red few manual over you cloud. than risk eliminating hybrid transactions and We By of application million of hundreds our data cash to environment. and by and a

These now completion we free by our and expansion. digital up company-wide many example, reinvestment For up system, contribute spending HR, of to inquiries of with initiatives AskHR to speeding productivity the in XX% XX%. for margin our HR up handle HR tasks

the Growth Turning our quarter. is driven generated flow. We cash to This to $X.X in expectation. by track on year year-to-year up and billion our million $XXX for us full is profit puts expenditures This performance year's results. and higher was in strong performance-based as and increase capital by lower working given mitigated well capital last efficiencies payments compensation action. as an payments, structural free

In form cash shareholders $X.X in returned terms of dividends. to we the of billion uses,

billion from perspective, sheet billion, liquidity a up balance position December. with nearly is very $X a From over cash $XX have which strong we

market year XXXX have debt accessing opportunistic the the XXXX of We to been and early ahead issued prudently debt get in maturities. and in

nearly the balance up over was at end year-end. debt first $XX of the quarter billion, $X billion from Our

the segments. to Turning

and both Software revenue processing. recurring & growth with had mid-single-digit in grew nearly revenue X%, our cloud revenue Platform growth Hybrid quarter of This, Solutions performance software's hybrid rates. in demonstrates transactions model. captures stream, renewal and AI growing which benefits strong the commitment continued with This is about platforms. this together line transaction We XX% software of with to clients' annual software in our

In all Hybrid Solutions, up & was across Platform business areas. revenue growth fueled by X%,

We Hat across AI continue in all data to security. automation, grew major XX% capabilities Red with see revenue for client demand and offerings. growth Hat, Red across broad

data IT strength Many to costs. AI continue AI, particular improved supply up for of also offerings management, by and in reflecting growth the given modern analytics OpenShift; management. and these take In chain have and driven revenue underpinnings grew as and quarter. market like IT We hybrid Ansible, offerings, application automation client business X%, X%, Automation demand solution. data was DbX, across serve Both workloads. and performance asset revenue mission-critical and cloud servers, integration this our platform, and our share for

X.X%. security identity data. now hybrid Bringing revenue capacity grew revenue was is cloud together, The In management up hybrid both processing, software last & $XX.X security strong billion. Hybrid our system for clients' and cloud, The core Platform all Security at across our growth couple drove significant remains of performance ARR threat this with which X% to over strategies. and cycles the growth. transaction Solutions for includes

growth we in fact, MIPS This good Xx transactional this price delivered in during this Processing cycle performance that growth year's our of both revenue. zXX opportunity translates increases, and quarter. was installed contributed Layering to software in zXX. In Transaction to and recurring

we Gross segment. year. X nearly of absorbing strong margin Software had this revenue the was in up a Moving latter was and I'll and to pre-tax quarter was X% quarter with profit growth last of from currency. the the up margin you, for flat remind first Consulting impact point

months performance Signings larger over similar with the last in quarter was Our XX grew and the X.XX. engagements. X% across smaller both book-to-bill ratio

transformation, technology-driven to continue We that hybrid environment. for demand cloud broad see deliver projects leveraging a

cloud solid the modernization quarters Within quarter, one demand largest Red was of offerings, we and for Hat our had ever. signings

is agility productivity areas particularly finance supply to transformation. and recently, contributing time to chain More with and clients faster cost value. in as greater reductions are digital This transformations on signings focused driving from such talent, and growth

in we seen within discretionary while revenue, some pull the of impacting have the projects, overall, growth quarter. we terms back realization clients more U.S. solid on had backlog In

back and customer in level, grew addition X%, it Consulting and Bringing XX%. and Business up application was growth global grew Revenue to by grew data X% Transformation Application Technology experience cloud the to led project, development transformation Operations management.

cloud expertise billion differentiate Red IBM over the today's of our consulting strategic partnerships XX depth continued in last annually, over our breadth revenue, strategic hybrid market. months. making this of $X up continue grow in partnerships Our Hat rate. to at double-digit a XX% segment And revenue over and and strong growth, now Consulting

pre-tax margins. consulting Moving to profit, gross expanded both we and

we we've to as X% margin of actions quarter the taken. about the year-to-year pre-tax was Our XX points from benefit productivity up in continue basis

Infrastructure flat. up the quarter X%. Turning z the Systems down up Infrastructure, availability, of Within cycles. to that of was Hybrid has zXX segment, fourth Infrastructure This was was prior program revenue Infrastructure was revenue performance outpaced Hybrid was X% and revenue and a revenue Support XX%. solid

for its energy cyber In embedded are capabilities scale, addition to resilience for cloud also hybrid AI zXX clients efficiency. security, leveraging and cloud-native at development around

can example, reduce on consolidating Linux system a For workloads XX%. to consumption up zXX by single energy

zXX. high-end in workloads flat. the on We Growth in revenue Distributed by wrapped continue MIPS was launch new was on in growth shipped Linux we strong as the have offset power to see PowerXX for of systems. declines storage infrastructure

The both life, XX product profit. by useful X points Systems' both changes improvement point cycle to margins. Moving expanded z and in gross impact. pre-tax offset benefits pre-tax from in basis We reflects margin the infrastructure and of nearly currency partially

now expansion provided it XXXX. gross level up first IBM revenue today's margin, expanded revenue year that cash bring cash me it we back free the currency and underlying have productivity a delivered for to model quarter, model good our When We with growth, IBM a flow of start wrap XXXX, October and our constant let midterm free line introduced model, in to delivered throughout and in last we margin flow. to In back we drove business up. growth. Now on the growth our in first grew mid-single-digit

Looking year at full primary free always, metrics: our cash flow. I'll start revenue two as with XXXX, growth and

always over of Inherent productivity we of free growth business expect our to by financial is of line, X%. margin midterm which in efficiency expect constant about model up driven and expansion, productivity top our we billion, Driving enhancement. $X currency improving $XX.X the mix, On revenue a to part X% billion efficiency And has and continue cash operating and year-to-year. flow been models. is initiatives

growth, initiatives by support $X future are expansion we of annual to in flexibility. deliver some business continue actions. financial we increasing to evaluate contributing These additional rate expected to the mentioned the initiatives I underway the XXXX. have current initiatives Altogether, to reinvestment end billion of and flexibility, and in enabling provide savings run margin additional the

a for our application growth still strong by revenue and continue In operating digital leverage, software to drives demand expect mid-single-digit currency revenue constant to In with profit segment. This expectations minute software's expect margin pretax performance X points continue revenue me Software, about on Consulting, and and model. see transformations by pre-tax we in growth Let expand spend line we modernization. to we for year-to-year.

projects seeing in said, So on as we the I some more are pressure States. discretionary United

point horizon, about see on midterm wrap product the to least by We any cycle with as to and revenue at of introduction. is our zXX we in to on flat Consulting revenue year in expect capitalize performance Consulting continue the to We're Infrastructure over of pre-tax expand now range X% X% yield dynamics. growth margin the the model reflecting roughly productivity actions. X

teens. revenue As with a pre-tax low result, infrastructure we margin to decline expect XXXX in the

provide To IBM's overall X revenue growth over should Infrastructure some perspective, by point. impact

in point line in segment expect expect And dynamics, range. these to year-to-year. our the to With model. margin operating continue tax That's rate pre-tax about would X.X by expand high to we teens mid- to with we be our IBM's

the currency has year, now point is last for than We mentioned earlier, neutral to XX X.X our growth gain, to expect fairly our which I the unwinding XX by you dynamics days. worse the dollar is strengthened revenue and over be I'll days translation As X about this year's of are ago. remind that to expansion. which year impacted cash profit last of headwind margin hedging the pre-tax point about our

fairly successful dynamics expect we z seasonality the though the due different with revenue remind of quarter you, year, at primarily launch the currency. consistent to to last in That's first last year. second underlying about Looking that headwind to of year-to-year be had up $X.X quarter, of Systems' are we and about I'll quarter second zXX creates billion, to and X points. a a product second cycle our growth

profit, second In operating first currency Between year. the to million, half under end the flip over now workforce still our in both rebalancing little of range of expect by we workforce headwind a first the expect from which action and This we a in first terms I half. be and and little half reflects of the have X/X tailwind X/X of a dynamics, half. rebalancing back the second activity maybe pay the underway. just the net a more. of mentioned to the this second We charge $XXX in should in quarter, the income

in get positioned the the flow expand provide deliver for color cash business good the our start a grow are fundamentals. let's on expectations more In to and growth, year free year. solid with Q&A. focused the a started. to had closing, more XXXX to entered we revenue quarter happy and as I'm We Patricia, and margins

Jim. you, Thank

the items. to of like Before we I'd couple Q&A, mention a begin

as is and ask end Operator, for I'd multipart from you information questions. let's at please the to of up second, provided the refrain it open supplemental presentation; always, questions. First,

Cross [Operator Our come will from Suisse. Instructions] first Credit question with Shannon

with demand marketplace the Arvind, there's of a right to uncertainty now. in significant amount end regard

I So want there more going to as color on questions are a you second of a both but I'm basis? people in demand it's vertical some the on if why a after of what terms in there's on, customers, market, and out they continue wondering, us Just a geographic know because, you and different spending can lot talk to to spend money speak you're mean, CDW, trends you're to seeing what hearing half. it's I give

for question. as imagine, time a can spend you and thank clients you And own making our the digesting what based saying. Shannon, we our of are both lot on estimates

you little. So a and let said to geography, try within verticals technology me then so it unpack segments,

So of lot is exception look any see uncertainty in the If not out. that covers broad Japan, in at of level, a swath of Asia America North certainly on I East, Asia, don't across the is the with we of the here, all. kind India, in geography a that media there of China, which playing Middle the

inflation, cyber, point labor deflationary technology technology the actually When demographic, meaning against on geopolitics answer I than all the only resiliency, of stronger interest Then everyone rates, look Europe, my at The is is it's force. think to but China wage right of we mixture would been chain to subject piece now. predicted have is that. because I a actually I companies come supply that shortages, if ago, is as inflation, six months different a that around but slightly have

primary are enterprises larger who Now apply customers. to that does our the

When to down slowing States, United somewhat discretionary. I because we But said. I is consulting consulting as did is that projects, see the come some in

down the is cancel spread to meaning that, may which to people the What we doing not as However, that down, is them seeing other in slowing we they of projects. for consulting, sense parts well. pushing globe why took some believing numbers are right, the are

software. signs seeing any we steady. demand are remain We're BXB Software, in of Admittedly, very weakness software. not are seeing in we

confidence to through. our We play think we product demand, in particular through. It's are not some less caution color much the And the in playing have weakness gave not double-digit still I into us will infrastructure, of which just macro. that I X shrinking. a in more, you healthy. case, any weakness that cycle which we that in that down area, BXC on why likely says it's issue segment. is hope is X% a But to want in X%, It think rates is went I

Thank you for the question, Shannon.

please. one next the to go Let’s

Our with from Amit question comes Daryanani Evercore. next

pushout good growth could in about softness I more hybrid software of of stacks I in potentially think in the up bit to and well? do sense, as I'd side happening do you you of talk But quarter. you you you software North software consulting some well? And on if about software think about side these love the spreading and as of that then So in How was to as that's secondly, happening, between seeing guess are hoping seems this a some as both to for America. risk that versus you -- think transaction how think fairly Transaction about hybrid Processing? the the any side, understand, think growth I you mid-single-digit year, Arvind, you across talked that the any that the be

question. linkage to Amit, So of the take your consulting parts and me other question hand the for first it of the Jim between I'll then on let software, and part just

clouds, is partners if projects it's think of including our clients. the into do just you tend consulting, it So providers, at with We going belief. want if parts. of Remember, work our we these I software with for sort large three I public in on look and consulting a including not down the other software lot to spread to our that break to to comprised

clients, that. there of for systems very to a lot see than see to we our X% not I don't running macroeconomic a a keep those linkage the subject software rate in Yes, is but our what and software but in slowing X%, we cautioning, it's environment. is down still the in current to lower critical

confidence us on gives what that's so those. And

enterprise clients ability be to enter going of AI to we think second I a is for automation benefit lot hybrid which portfolio. tailwind going Also, the cutting, and that of productivity because I think software a towards year half do take the advantage our the cost movement a as to do of perhaps cloud lot and of the elements are Jim? of will likely

Yes.

overall. the with to much mean, you overall on year So very regards start pleased fundamentals nearly well, very that By thank our integral software the quarter, model are hybrid building but high the margins our is business that I here of doing thesis cloud software Amit, X% question. in first extremely the end gross But Arvind also part basis said, for XX of what only growing with an at just to as way, of points, growth the growing our not we the income. equation. pre-tax part an economic platform integral multiplier of

advantage revenue, IBM's over composition, $XX.X every believe question, profit, capitalize of I your billion NRR we back Shannon's been XX% think growing clear is of and that of out going a now, And X% go X/X we every and ARR for revenue of of on a $XX and linking that. of part competitive a flywheel north IBM's effect built portfolio to very solid technology and industry question to of billion, over source XXX%. that Arvind's well client

a versus & contribution because of about then back a Solution Platform you question transactional. and take Now the asked step let's mix revenue Hybrid

the about revenue first Let's talk contribution.

optimization. started We that we about on and X But recurring to end. said we've a that points, going the back XX% some of that out board for first way, growing very little MIPS is entering we over quarter high -- of quarter XX is of along come underneath the growth we that, confident said recurring of a renewal midterm it contributing price portfolio year capitalizing that the we going the the in And stream to high-value revenue way, and near of points actually way. model installed our out year, rates, dot model. half and putting contribute capacity X by first portfolio, that about Red to growth. off XX% thought IBM, the And with to strong revenue. level with days And revenue, on annuitized got the were from Hat, that that half laid model XX% on of the by played mid-single-digit out our out growing year. our Going We about is software ago, a

the quite Now it then way, couple we're ELAs year three-year said up definitely The period, you of we X-point Software's down XXX% get don't one X the contributed first years. on growth. we And whittles remaining a And a and the actually first we down XX%, the headwind. about expect in said cycle down. Transaction, volume quarter, go by the over ELAs. point XX% the Over into typically we we of acknowledge year heading and to zero next And well. transactional did actually over in

So that's contribution kind of a build-up of the between our businesses. two

to is $XX.X mid- leading that's Hybrid delivered got And cycle. we along for X% is billion, way, business, We And Red us. Platform from a by of We've that model for given model. the see Hat positive which digit. our around anywhere first in performance lines the indicator, Solution, high an renewal is year of at right the improving, quarter. a growing ARR single the the Now what & full X%.

Pak Cloud be new continues Our got growth to continue we strong, to very innovation to bring we market. and that

those to And and mid-single X.X% again, renewal growth. on very and Processing, is price. We somewhere going Xx And that capitalizing strong believe be full growth pleased in in overall first installed that low is the MIPS then year digit. Transaction quarter, to

your up hopefully software the of for kind portfolio that So sums question.

sure. Okay,

Let’s question go to please. next the

Our next question with Sacconaghi Toni from comes Bernstein.

I about was Red just wondering if Hat. you a could little bit comment

ex at for for X% it was mid-teens quarter, was probably XX% X%. growth guidance your year. recall And the I the think first revenue I currency deferred was accounting in or constant but

XX%, contribution half X% we accounting where acceleration there's or XX%, like So the or be to how deferred so the get an confident year X% that little revenue can do XX% of no from back fundamentally to XX%.

software then in you And business? And be price you of of in Transaction magnitude just impact seeing the of Or we increases? of software on impact the Processing? pricing? Are comment that seeing other you the about can the should of thinking are only how sort secondly, parts

So great questions.

and So then a start, let me lot give more Jim detail. it to to I'm going for

Red as all, first Jim expecting in the of to Hat, the are inclusive well, that's Red of kind all-in an QX. of and year we where now we some to as I answered of So That's number And XX% XX% think remarks of be. the for prepared on in for expect the prior year. one questions Hat that's

end bottom of So QX the was at range. that

the We cycles go Red are seeing of year. Hat. our more We know demand coming renewals up through as in we

sort of software that three-year it's think you like a about other If much cycle. businesses,

to go back XXXX, you boom the If all a coming was which in are up XXXX. those year, way

And tailwind that or further the point will believe point so we QX numbers. us behind X X give

So road as sort us go renewals the areas that in as profile, and we'll as likely on through down we range. well both like that based faster-growing demand OpenShift the of the confidence gives that, numbers of the Ansible coming uptick the that see

more color the let to question. So lot sort with it part on on and that add to give both a Red other that, color pricing me to Jim on of Hat your

the topic of this get because can thanks, with has clarity Toni Thanks, so environment. quarter, discussion all out been here some hot for over of I of light especially we the a my investors and Yes. know macroeconomic Arvind, question in the first

of first quarter, way, the year all, last performance in of portfolio. compare Hat we're our here XX% the XX% growth overall. overall the of, Arvind off as the toughest at by growth pretty pleased indicated, Red First with

to the this by compared way, the growth to And to first similar GAAP the is in just very the operational quarter. rest, put growth

dollars single first of is minimis, bridge it's intercompany, the error is and GAAP a which, get And deferred the in we combination in the as we rounding by the to revenue, to like by to the operational way, way, that forward. a from expect go million So de quarter. the continue

days that talked the we XX%. here revenue. acquisition put strong way, Underneath deferred the quarter, ago, performance the continue talk we that north growing and Red four years the aside. XX We to we what, number of OpenShift's now by and number Hat performance of the So put this XX%. But report, about there. into about we're, in out let's

momentum a ARR And of portfolio, Now business, good on scaling is nicely billion overall. taking seeing Arvind's as hybrid leading that. to the that Ansible and we've OpenShift top point, platform very we're cloud to in our share got $X

half growth going XX%? called to year at second We the the XX%. Now now XX% of in what's the to that drive

I think being prudently cautious.

We have base available that half. in, a strong renewal the start will in kicking second

that's to overall. with Red four step taking the subscription. core Hat the up the the wrapping we're really into acquisition. big have pleased So renewal base and But discussion investors, We're the think answer back, years this about just I on a I

X.X We the from years. Hat Red have revenue in quadrupled pre-acquisition

to overall. And single-digit software around effect, multiplier the portfolio we've growth high mid- -- high accelerated and our consulting business accelerated portfolio, a our to we've

So we're very pleased overall.

Thanks next go the that. to question? we for Sheila, please can

Yes.

come Wamsi will Our of next Bank question Mohan from with America.

is even the Arvind, same time, you're consulting, growth, now slightly possibility Red incorporating lower clearly back-end areas revenue this macro. like some and Hat now. the some profitability more for at sounds around But is loaded like of both

PTI unchanged giving to come is to through bps that is potential flow that despite bps guide the that. deterioration? by you're and color outlook XXX the sort having remains Love in XXX really these the Consulting free Software half second revenue the going in get targeting what segment, So you of cash in on And some of confidence year. improvements

of X/X it. and I'll spoke we on seeing January, in of we you I'm the some Look, what then and business, Jim X/X when Sure, terms all half answer second actually I'll let were in in the We it put half. precise the numbers about -- in to Wamsi. first saying on

bit saying first little are remaining we more the actually the in half. Now in second the X/X half than and a

it of are up bringing the So on little a Kyndryl taking we despite charges that restructuring some and absorbing charges bit numbers. in the actually those actually, associated we're

all what as cash forward. them projecting in numbers increases, going play me underlying that at we us our look year. seeing in to be et not have actions the are is revenue and those and productivity quarter. PTI the in in you point both right that software, play consulting, through flow we And the the X points despite the of cetera, are in performance allows all So the of quarter, confidence shoots X to first when of gives the able confidence in predict we enough the But to green out

restructuring increased that, actually, And flow numbers. I charge, Jim, actually payment Wamsi. cash the $XXX all think like down to towards QX together that so we free Despite add is good by our million, to a towards goes and anything you'd that?

real another Yes. but charge half. investors on our and benefit topic our big are would is that segments. overall. first a you it, for mean, significant much of workforce The distortion We point, a more, charge. that of two distortion very our Wamsi, in question. maybe $XXX in that the issues all currency is will driving the seasonality important nailed to you thank year, cash, that half way, return I rebalancing in would million-plus it just Arvind's And for the back the this profit and I a our say, second a said and of little Again, the Arvind. bit latter of the by pay the

allocate we costs indirect that. our As margin of of get of all all segments you fully our they'll so know, support off leverage to

But the points. It was currency. end a half. the way, only basis Revenue, Currency picture half at for bigger make the I'd it to point high by -- the very a quarter. of first headwind neutral year, was the headwind in is a XXX different on

as businesses our impacts in revenue the because currency. Between by talked headwind. currency our and which, Second And into natural quarter, U.S. product-based we human the cost say same the basis second a dollar to source local consulting past, a it's predominantly many all capital-based half. revenue. way about as we in distortion cost in a tailwind is business, business our in That XXX turns times the points about But way, differently. you have understand, hedge as nice

So annuitized carries profitability. benefit substantial marginal that dollar very coupled a in at and when that margin world it software has digit currency a flips leveragability second growing TP to high high-value half, mid-single with translation the

currency billion it's that on $X top going the workforce else aside, and continue after. that, going we, productivity we're of rebalancing to equal, put aggressively have So number all a pretty typical out year. And

you, Thank Wamsi.

the Let’s question next go to please.

with next MoffetNathanson. comes Ellis from Lisa Our question

how are the ask banking you you much had firms? weeks so. seeing any X flip of maybe or of disruption? over last does products the demand the about mini management and given in services impact side with risk like on we've for recent financial What impact the in area? seeing Or on Like say, to services, that, the any acceleration work Wanted IBM are your crisis business,

which what question. a we so I'll is a Europe, first-order seen, United mostly second-order us, impact. be great saying by little States that is to begin impact have a far Lisa, bit in and going not on

banks and being say me the regional what around bulk of that Let mean. national uncertainty the They're regional of really let these smaller some acknowledge me The I labeled is banks. banks. unpack banks but are

said, as an some their going and that get impact small clients. our now forced to have business not But are tightening of largely SMB, direct they standards, that clients lending is on into medium who

because the XX muted seeing our us. of of accounts, our we in but banking gets XX markets. whether as you by companies who When Now impact are think they large States, pretty Europe, or demand that in clients, it top largely acknowledge X by United by let retail in is clients, payments, now looking are the clients, think top consistent capital are at right the of larger other the driven on me we're you though,

as that, first-order and have think clients. of you expect for employment to our that all as continue is about reasonable And GDPs, reasonable as demand long going you those, we

what The into will growth that but our a no impact, baked doubt order second tiny and have current it's very muted is assumptions. kind of is a

go to the next question Let’s please.

from Stanley. Our next question Morgan with comes Erik Woodring

how update given rates, an made of the M&A, environment, some macro if business, about comments balance. thinking can you you Arvind, maybe your guess, just the broader cash I you're the consulting just give on interest about us

an If just anything days you all bring provide maybe and could if changed ago? together, just XX has it relative update today to

Thanks, Erik. question. Great

believe by actually So quite time. opportunistic prices asset believe an I adjust, begin saying, I I'll this could that be as

determine going or of that XX than you probably is in month really predict. be far opportunistic do. I months? candid to three months most more in it be to say in Now a or we I'll can't

what Now prepare interested? areas are balance what are we sheet. our we of you notice, a and amount cash we on carry doing fair to If in

are $XX level. where look we the judicious. in and have of Even the for areas we for X As going out, IBM it be wait in want. over X-year in going that a areas if FINFLEX total have the the a accounting of at at going period, we consulting billion FINFLEX circa you software to to time. We're right because years. amount fair accelerate. can leaves our pointed be that over is And going to it Those be areas to We're higher-value dividend,

The We will spend be XX%, be remain expect to software. total XX% maybe remaining in our of consulting. will in

going cyber, have about. areas and Software, stick we hybrid intelligence to our we're automation, In data, talked artificial the cloud, to areas:

the appropriate is long-term and part that baked models So our for our time are areas, is a we're is it definite have, into very amount mid- of is of wait those the model, what Erik, part answer, we for going to both to M&A and growth. and the leverage. to But

next let’s the question. you, go Sheila, to Thank Erik.

Stifel. Grossman Our next with question from will come David

year that you could you the and pricing pricing Arvind, about little in more help dynamic perhaps us bit face. maybe talk given the the could some And environment, better the understand we macro on a marketplace shifting pricing year? revenue outcomes prepare on how potential this revenue think growth next pricing its of to impact just and and of for and the its us growth and impact

inflation up labor-based David. face the In answer to is the labor-based Thank differently business, the that Okay. between we my of businesses. the seeing. the a going same businesses and break world rest I'm Look, technology you,

Our expecting higher are wages. employees

colleagues As their a year at we hire wages higher get were than similar new they hired people, ago. in

from that We back our have to a clients. on return get

margins you not healthy XX-month late Consulting a if Otherwise, that in. to get if XX-month there get to you I a that lag, take year. all said, to of has baked the not see That last take business. X- which of that's a But XX- is can you slight in and period, is a that, why period, some all but

that begin you some But if pricing but over We power expect medium then that term at of the there. of get XX%, back. kind that remains you're we'll behind inflation to get

the technology, that inflation people in against invest heavily those. and in There businesses, experienced to If technology we we I is there our in go R&D clients. to goods a our gain. purchase help is And very

So there also is there. I'll what it's inflation into rates. word packaged inflation. There all again, it's in the But is, in, use inflation currency

saying UK will get at If was we not morning, I the this full that the expect number inflation. XX%. the We looked

or may will You not we get get X%. X% XX% or but X%

or our we don't my willing of away. that's that that time, not is, Otherwise, we in it college invest years, you economics are the clients But think, get innovation how feather which our required. to able that that I shock that to think over is, of so sort a So sticker be two remember about want. over the I we will in, again, clients And back can inflation three nature right should inflation, in it, feather lessons. if

have add and thing. direct within you the of that the value coach just have a would offering as goes reflection continues always one your It overall. differentiation to I is optimization without me, pricing portfolio saying Arvind you

we about side. improvement quarter way, fourth on nice of the talked the consecutive margins. By price consulting So

You're seeing in up that out margin play XX the gross points. basis

price have do about we we XX software-based right, we where differentiation optimization. But some days portfolio, our ago, had overall, talked

play. seeing probably quarter, about first And some You're X in of point. the that

model full year, think mid-single-digit points. might of of be we our the For a couple

in somewhere So David. that ballpark,

Sheila. one Let’s more take question,

last Our Jefferies. from Kyle come will with McNealy question

the what do cloud-native the applications you business, And near-term foundational like you that software with you to products whether use some but Do you that that years. little AI? the of data whole and infrastructure with different the launching know now you see go products business just could the end-to-end opportunity help few about standalone great. across past and or if wonder supercomputer whether data or your you're opportunity, a new products doing be in I it's AI I Vela business your announced? anything areas in most models versus any would AI have could you're reacceleration bit reaccelerate talk AI,

Kyle, great I'll answer so my X question. X to into hour try I'm not minutes. have an sure we or

lot of a So opportunities. we see

the models. word You used foundational

for machine for about everybody generations has in deep systems sort large through of learning expert the that, X learning, think language and 'XXs from else, of through to the this XXXX, models 'XXs, AI. now I quickly very So just and and era decade last AI gone look, generative

that A path. think down the occasionally their those has capture answer it is to answer the data. consumers, believe have it's for tremendous careful as going enterprises. that friction are inside AI They about train there some to people I that for need They and They AI But into there's a an BXB from opposed lot business of AI side where is for companies of industries as application cannot home that what's the consumers. We lot kind of answer. to for still data. AI sources I a excitement it run going to an reliable on only. of a the inserts worry out are about be used

seeing people that techniques, Then additional and be the of model the large a are of don't is realize then can it is what do with cost deploying second we lot What AI. language training. trained down these takes a minor part tasks very is XXX

almost for you expensive, lot can first no training is is benefit a time see X in and X times. Xx more value do terms cost, a So to you X, maybe to tasks that productivity. if yes, of the But then overall the can XXX additional

ITOps AI We're code Wisdom some shows So calling you around that it did We but internal Project what our name, a examples? is of it Ansible. called for product a preview are example. can individual. to by person Xx operations IT get Xx write, the written that's Well, our a that might XX% productivity that gets XX% one AI. to code for the of That's

care customer can example of to XX English, XX we that CVS past. German, which we that multitudeness it's or at from in French, are cost XX as and or effectively where do language use, order-taking Bank, McDonald's languages you the our can whether through play Spanish, X now Another Health to the see Bradesco examples, in for

do of speed the in through can shows there. that So that we deployment

focused what drive labor and talked service IT our digital is cybersecurity. this of on that in go Jim The operations, example that are we and an internal to all centers is areas in care, customer about

those talked products, products, come of products of all embedded cybersecurity directly, ISVs. so and with it from see You'll as with sometimes products products or about piece like and clients, our in sometimes sometimes Wisdom, partners be data software one our I in IBM with consulting flavors, it lake X a our one through of our

I what So client look good feel confident now from to discussion to over up you continuing the move hour me we dialogue our is environment forward our about wrap call. and away the ability we value in last meet I and to the shareholders. this as the needs this year. through deliver very hope ability to took let

to turn to I'll up it Sheila, you over the wrap call.

conference Thank you The for now participating call. on has ended. today's

at disconnect may this You time.