IBM 4Q15 Earnings Call Notes

International Business Machines (IBM) Management Discusses Q4 2015 Results

Martin Schroeter

Strategic imperatives represent 35% of revenue

“Our strategic imperatives continued strong performance, up 26% for the year. This now represents 35% of IBM’s revenue. Our profit and margin reflect our portfolio actions as we shift to higher value, as well as the level of investments we’re making to drive our transformation.”

70% of software business is annuity-like

“On an annual basis, about 70% of our software business is annuity-like, including Software-as-a-Service, and subscription and support. Our renewal rates are steady, our SaaS business is growing, and our overall annuity revenue grew in the fourth quarter and the full year.”

Moved portion of middleware business into cloud business

“To accelerate the integration of middleware in a hybrid cloud environment, we made an organizational change at the beginning of this year, moving a portion of our middleware business into our cloud business, reflecting the importance of our middleware in the hybrid cloud marketplace.”

Weather company handles 7x more transaction volume than the world’s leading search engine

“One example is the Weather Company acquisition, which will provide the basis for our IoT platform. This acquisition brings with it a high-volume platform that can ingest sensor data at scale. This platform can handle enormous complexity, taking in four billion weather forecasting points and 26 billion queries in its cloud service each day. This is the fourth most-used mobile app, handling seven times more transaction volume than the world’s leading search engine. Some of this has been running on our cloud already and of course we will move all of this to IBM cloud.”

Currency continues to be a headwind…2-3 points this year

“The macro environment, as always, is mixed, and currency continues to be a significant headwind. While we are focused on remaining competitive in local markets, the translation impact is significant. It was an 8 point impact to revenue growth in 2015, and at current spot rates, currency would be another 2 to 3 point impact this year. ”

Profit impact will be substantial from currency this year

“The profit impact is substantial as well, and given the sustained period of dollar strengthening, the profit impact in 2016 will in fact be greater than 2015, both because of the translation impact, and the roll-off effect of cash flow hedging gains. At current spot rates, we expect currency to impact pre-tax profit growth in 2016 by about $1.3 billion with nearly three quarters of that coming from a year-to-year reduction in cash flow hedging gains.”