IBM 3Q15 Earnings Call Notes

Fell short of our expectations

“We always said this would play out over time, though this quarter we fell a little short of the revenue expectations we set for ourselves. The GBS transformation is taking longer as the market shifts away from some of the more traditional application areas and our storage disc business was weaker as more of the demand moves to our flash.”

Lowering EPS expectations for year

“we believe it is prudent to update our expectations for full year operating earnings per share to $14.75 to $15.75 while our view of free cash flow remains relatively flat year-to-year.”

We’ve come a long way with Watson since 2011

“Today, I want to focus on how far along we’ve come on another dimension when Watson played jeopardy in 2011, Watson just did one service, question-and-answer, underpinned by five technologies like machine learning and natural language processing. Today we have more than 25 different services or APIs, underpinned by more than 50 different technologies like dialogue framing, knowledge validation, voice synthesis, language modeling and visual analysis. As I discussed earlier, we’re also bringing an industry dimension to the Watson platform starting with Watson Health.’

Double digit decline in storage hardware as market rapidly shifting to flash

“The growth in our high end servers was more than offset by a double-digit decline in storage hardware driven by weakness in the high end disc and tape. This market is shifting rapidly to flash where we again had very strong growth.”

Transformation going well but not as fast as we’d like

“By the way, that transformation which I would characterize is well under way is going well. It’s just not going at the speed we’d like it to go. So, we know we have to drive that a bit harder.”

Pressure in storage isn’t surprising

“The storage environment and the pricing environment that we were noting in terms of pressure is really in that high end spinning disc environment, so I don’t see that changing dramatically given the industry landscape. In fact our view has been continues to be that the faster we can move to flash and the faster we can continue to build out our high value software defined storage platforms, and we’ve had some pretty exciting announcements this year as you know, the sooner we’ll see a return to growth in storage.”

The offerings we’re delivering are right on and some of the investments we’re making have longer tails

“The offerings we’re delivering into that marketplace are right on and resonating with customers and we’re seeing returns. Now as everyone knows, some of the investments we’re making have much longer tails, so we’re investing heavily in Watson. We’re investing heavily in Watson Health. Those returns aren’t even in our revenue streams yet but they are the right things to do because those have tremendous futures to them.”