IBM 4Q16 Earnings Call Notes

Martin Schroeter

On pace for $40B in strategic imperatives by 2018

“We delivered 14% revenue growth in our strategic imperatives for the year, led by cloud. We finished the year with $13.7 billion of cloud revenue, which was 17% of IBM’s revenues. Our strategic imperatives, together generated $33 billion of revenue in 2016, and now represent 41% of our revenue. To put this in perspective, when we first established the strategic imperatives, we said they’d grow to $40 billion, and represent over 40% of our revenue by 2018. The growth we achieved in 2016 keeps us ahead of track to the $40 billion. In fact, a growth rate of 10% to 11% from here gets us to the $40 billion in 2018.”

The debate over AI is over

“We’re moving into a new phase. The debate about whether artificial intelligence is real is over, and we’re getting to work to solve real business problems. As we move into this new era, it’s important to understand what enterprise clients are looking for. They need a cognitive platform that turns vast amounts of data into insights, and allows them to use it for competitive advantage. They need access to a cloud platform not only for the capability, but for speed and agility. And they need a partner they trust, and who understands their industry work and process flows.”

Building unique datasets

“This is where we’re clear and confident about our point of view. Yes, we have world-class cognitive technology, but that’s table stakes. We are building datasets by industry that we either own, or we partner for. Importantly, we’ve designed Watson on the IBM Cloud to allow our clients to retain control of their data and their insights, rather than using client data to educate a central knowledge graph. And we’re using our tremendous industry expertise to build vertical solutions and train Watson on specific industry domains.”

The application for blockchain is well beyond financial services

“But the application for blockchain is well beyond financial services. For example, we’re collaborating with Walmart to improve the way food is tracked, transported and sold to consumers across China, and with Everledger, who is using a cloud-based blockchain to track the provenance of diamonds and other high value goods as they move through the supply chain. Here too, the data needed to improve food safety or track diamonds isn’t on the web. It’s private data, owned by enterprises, who want to work with a partner they trust.”

Currency will be much less of a headwind

“I don’t know when currency is going to ramp but we do know it’s much less of a headwind next year than it was this year at least at current rates.”

Margins are higher in strategic imperatives

“our margins in the strategic imperatives continue to be higher than overall IBM and higher obviously than the core, so our focus on delivering value hasn’t changed. And whenever that crossover point happens to be, yes, we’re already close”