IBM at Morgan Stanley Conference Notes

Deborah DiSanzo – General Manager of IBM, Watson Health

Need scale to collect data for AI

“artificial intelligence is not easy, so you need to have the scale in the resources to be able to do it. I think when I think about our advantages, I do think that we took the IBM crowd and we really did make it medical grade and we’ve spent a lot of time — it’s not just having the data because now everybody comes and says to me, so many million records, but it’s like what is the quality of those records; have you curated them? Have you cleaned them? They’re ready to put — are they ready to do something important. 10 years, 65 AI services specified for help. IBM knows the work that went into that, tremendous amount of work and then finally our collaborations have gotten so much more rich, though fundamentally if you do good work for your clients and partners then you get to do more good work. “

IBM 2Q17 Earnings Call Notes

Martin Schroeter

The cognitive opportunity is a global one

“The cognitive opportunity is a global one, it’s not centered in New York or Boston or Silicon Valley; but you can’t just look and listen in those places. In healthcare alone, you’d miss that this quarter the first healthcare provider in Latin America is deploying Watson for oncology, and Baheal Pharmaceutical Group is bringing Watson for genomics to clinicians across China. In fact, 80% of the hospitals who’ve adopted Watson for oncology are outside of the U.S., and that’s just healthcare, we have Watson deployed with other leaders like Berdasco [ph], Honda and Vodafone as well. So across industries and around the world our clients realize that data, in fact their own data is the route of competitive advantage for all companies.”

80% of the world’s data is not searchable on the worldwide web

“80% of the worlds data is owned by enterprises, it’s not searchable on the worldwide web, it’s customer data, and patient data, clinical data, supply chain data, transaction data and companies want to unlock and exploit that data; and so that’s why enterprises will move to cognitive on the cloud with someone they trust who has leading tools and industry expertise and a data model and business model consistent with their goals, that is the IBM cloud plus Watson.”

IBM cloud built for enterprise

“Clients are moving to the IBM cloud because it’s built for the enterprise and can optimize workloads across hybrid environments. The underline architecture protects our clients data and insights and is optimized for cognitive workloads to help our clients create new business models. The American Airlines example I referenced earlier is a great example where we’re building on the partnership we signed last year. American Airlines announced this quarter they will move to the IBM cloud and use it as the foundation for their digital transformation. They will migrate critical applications including AA.com, their customer facing mobility app and their global network of kiosks.”

IBM 1Q17 Earnings Call Notes

Martin Schroeter – Senior Vice President and Chief Financial Officer

Not adjusting our guidance

“So, a couple of things Toni, one we’re not adjusting our guidance, we’ve reaffirmed that we see an at least $13.80 number for the year, and we also see free cash flow flat, roughly flat as we said. So same guidance as we talked about in January and quite frankly from my perspective the quarter played out you know pretty much as we expected, other than we thought we had a couple of more signings relationships in services that we could have gotten done, but by and large the quarter played out as we expected and we maintained our guidance.”

We’ve been making big investments

“And with that I’ll wrap up the call by saying, we have been making significant investments and now we’ve added, by the way, a ton of capabilities to the IBM company. We started new businesses, we made new markets, we’ve changed, as we always do, industries and professions and we’ll continue to do that. But now it’s with the business positioned very well for the long term, in terms of capabilities. Always opportunity to add a little bit here or there, but with the business positioned well for the long term, now it is time to focus on improving the returns on those investments. So thank you very much for joining the call today.”

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”

IBM at Credit Suisse Conference Notes

Martin Schroeter – SVP & CFO

There’s so much data being created that you can’t just program a computer to find the relationships that you’re looking for

“the amount of data that our clients have already and quite frankly the amount of data they’re creating everyday in order to — when they run their businesses and in order to help them understand their clients and how they serve their clients best is creating an opportunity for us where we can no longer, nobody can any longer just program a computer to find relationships that you’re looking for. It’s just too much data and so in a world where a system has to learn about the data, you have to find a way to interact with it. That’s roughly for a non-technical person, that’s roughly what we’re talking about when we say a system where cognitive will influence and affect every decision that companies will make over time. So the world of cognitive is here because of the amount of data that our clients and companies already have as well as how much is being created by the world today.”

Cognitive requires an amount of compute power that is only available in the cloud

“Now all of that requires an amount of compute and amount of power that is not available for everyone to invest in, but that’s where the cloud comes in and so there is obviously an economic element to moving into a cloud environment, but more importantly for our clients, we see an ability for access to these kinds of cognitive applications as well as an agility that you get from your business and running in a cloud environment.”

The only way to thrive in healthcare today is to have a system that can ingest all of the data that exists

“Therefore in our view the only way to survive, the only way to thrive, the only way to deliver proper healthcare is you have to have a system — cognitive system that can ingest all of the data that exists today in a way that allows you to get the right method of treatment soon, that allows you to get the right linkages and the right clinical trials early and in a complete way, so that you can put together, you can put together that string of treatment and fit within whatever that envelope happens to be when that payer decides in total how much they’re going to allocate.”

IBM at UBS Conference Notes

Tom Rosamilia – SVP, IBM Systems

Systems business

” Systems, for those of you who don’t know, is a combination of servers and storage, some responsible for our power business, mainframe business, and our storage business, hardware business software.”

Have to design systems for the cognitive cloud era

“I’ve got to make sure I am designing systems for that cognitive cloud era. They’re not the same as systems that have been built for prior eras like what we continue to do with transaction processing. So I’ve got to build design for cognitive, design for machine learning, design for artificially intelligence, design for systemic performance not just what I get from the processor. So I think the biggest change I am seeing and in addition to the speed is the fact that the infrastructure has to deliver for the workload.”

Blockchain is a great technology to embrace

“We’ve done other things like making job available on the mainframe; so all the new languages are available, so reinvigorating that enterprise. And now blockchain, blockchain to me is a great technology to embrace, because it in of itself is transformational. And so when the research team came to me a little over year ago and said we’re embracing this thing called Hyperledger, and we’d like to work with you on the mainframe environment, I was anxious to do so. And we sit-up in the cloud on the mainframe on LinuxONE back in the summer time a offering for blockchain in cloud. And we’ve got over 40 claims now using it in proof-of-concept mode, transitioning into production mode now to begin to use what they see as a secure container for Hyperledger.”

Broader applications to blockchain than just financial services

“I see it dramatically broadening. But specific use-case I’ll give you is one around supply chain. And I see a lot of the logistics in the supply chain capabilities being transformed by blockchain. Anything that takes a long time to do settlements today and takes multiple players and where I can benefit from having this audit trail and being able to do faster hand-offs, I think is a great example of what we can do with blockchain. I’ll give you a couple of examples. We’re working with the Wal-Mart, they happen to be using LinuxONE on the mainframe for their food supply in China. They want to know where this product started from and where it ended up. If they get a problem in their supply chain somewhere, they want to be able to trace it back to exactly what batch that came from. And if there is a problem with that, I only have to take that batch out of production or that batch off the market. I don’t have to take all the spillage off the shelves because I’ve got one place where it contaminated. So by being able to check the providence of that food supply, they can ensure a much safer food supply in China. ”

Flash is definitely replacing spinning disc storage

” I will tell you from a flash perspective, we were here together three years ago just off the road in Sausalito, and we were talking about convincing people that flash would replace spinning disk. I don’t have that discussion anymore, it’s very clear that that’s happening. So I don’t have to have that price performance discussion. Now, I mostly have the discussion about why I am better than the other guys. But I don’t have to talk them into the transition into flash. We’ve moved flash across our entire product line. You can buy all flash arrays for apron systems, for DSAK model for flash. You can buy store-wise, at models, all-flash. You can buy DeepFlash 150 for scale-out environments for each PC computing. So we put flash in every step along the way in our storage portfolio from the high-end to the low-end. And so that is clearly a transformation that’s happening in the industry and for me.”

We are not just giving up public cloud

“First thing I’ll say is we plan and intend to be a first-class provider in public, in public cloud. We do with the IBM cloud offering. And that is really important for people to understand. We’re not just giving that to others, we’re embracing it. We’re going after it. And making our platform-as-a-service layer available on top of that, it is essential for our strategy going forward. We also do a lot of cloud managed services for customers today, whether it’s on-prem or whether we do in our data centers. And my services colleagues banish that. And then there is this world in between of hybrid. And as I said, really need to define that. Ask vendors to define what that means. What some people think it means is the ability to use capacity on-prem and eventually use it off-prem when I need it.”

Near death experiences are good learning experiences

“So I would actually recommend a near-death experience to anyone in the room. I wouldn’t recommend a death experience. But near-death is a good learning experience. And we certainly went through that. And I think it helps motivate us through transformation and saying, I don’t want to get to the point where I am struggling to keep my head above water. The thing that’s so different for me this time is this move cognitive is one that we’ve initiated, not the one that we’ve reacted to. And so, to me, we’re on the forefront of this. We have the leading capability in cognitive computing. A lot of it invented in IBM research. Some of it augmented by things we’ve done, but most of it really home-grown for our R&D dollar. What I am delivering in systems for cognitive computing is all things that we’ve either done or we’ve partnered with others to do. So, I feel good about it being on the leading edge of this, not being on the bleeding edge of this and thinking about what’s going to happen if we don’t embrace something. We’re driving this. We’re not reacting to this. So that’s a fundamentals difference.”

International Business Machines (IBM) Q3 2016 Earnings Call

International Business Machines (IBM) CFO Martin Schroeder said currency fluctuations helped reported results for the first time in awhile

“Cloud delivered as-a-service is part of a solid recurring revenue base across software and services, and our annuity revenue continued to grow. Of course, the acquisitions we made in the last 12 months contributed to growth about the same amount as last quarter and for the first time in quite a while currency was a modest tailwind to revenue growth.”

Continuing to forge partnerships with other technology companies

“We are building the industry’s broadest and deepest cognitive solutions and cloud platform portfolio and we are extending our capabilities. For example, this quarter we continued the global expansion of our cloud footprint and we now have 49 cloud centers. We formed a partnership with Workday, where IBM cloud will become the foundation for Workday’s development and testing environment. And we extended our partnership with VMware to enable easy hybrid cloud adoption.”

Brazil surprisingly showed strong growth

“Latin America was up 5% led by Brazil. While the environment remains uncertain, double-digit growth of Brazil this quarter reflects the importance of our z Systems platform to the banking sector.”

They are devoting a large number of resources to their Watson Healthcare platform

“Turning to our vertical plays, we are focussed on scaling our Watson Health business. We have over 7000 employees and target four major areas, life sciences, oncology, imaging and value based care. We launched new offerings, such as Watson for drug discovery which is a cloud based scalable platform that helps life science researchers discover new disease pathways, new drug targets and additional drug indications. We had several major client wins, including UPMC and Best Doctors.”

Company is still specializing in making sure their clients data is 100% secure

“And moving to the cloud, our clients need to be sure that data is secure. Those in regulated industries need to know where their data is and many need to keep it in country. Our cloud infrastructure allows clients automatically to provision virtual with bare metal service while meeting their data sovereignty and regulatory requirements.”

International Business Machines (IBM) CFO Martin Schroeder explained how he sees the company’s 2017 performance unfolding

“Now, as we go into 2017, with our big transactional quarter coming up obviously and 90 days we’ll talk about what we saw in the environment and what that position us for 2017, but I do think we know, we know a few things as we head into next year already today, so we know for instance we’ve got good momentum in our strategic imperatives and we continue to see with our investments and our view of the market, how that resonates with clients and I think we would expect to continue to see good strategic imperatives performance which also by the way will drive some investments but keep in mind that with everything we got done this year, the bulk of the spending, the bulk of the investment dollars we freed up next year, that’s a much bigger number next year, so we have a freedom and an ability to invest more heavily given what we’ve got and done so far this year.”

 

IBM 3Q16 Earnings Call Notes

International Business Machines (IBM) Q3 2016 Results

Martin Schroeter – Senior Vice President and Chief Financial Officer

Currency was a modest tailwind

“for the first time in quite a while currency was a modest tailwind to revenue growth.”

Systems revenue was down

“Our systems revenue was down this quarter. The z Systems performance reflects the fact that we are seven quarters into the product cycle where POWER reflects the secular decline in UNIX mitigated by growth in Linux. There is a tremendous amount of change in our industry and we are continuing to invest where we see the best opportunities.”

Strategic imperatives represent 40% of IBM now

“Over the last 12 months, strategic imperatives delivered nearly $32 billion in revenue and now represent 40% of IBM. We had strong performance in our cloud offerings which were up over 40% led by our as-a-service offerings. We exited the third quarter with an as-a-service run rate of $7.5 billion. That’s up from $6.7 billion last quarter and the bulk of the increases organic. So we are building scale in these businesses.”

Block chain potential

“We believe block chain has the potential to do for trusted transactions what the internet did for information. We are building a complete block chain platform and are now working with over 300 clients to pioneer block chain for business, including CLS, who settles $5 trillion per day in the currency markets to implement a distributed ledger in support of its payment netting service and Bank of Tokyo Mitsubishi for smart contracts to manage service level agreements and automate multi party transactions.”

Watson isn’t going to run on someone else’s cloud

“And it came up as you heard on the call, will Watson run on someone else’s cloud? No, it won’t, it will run on the IBM cloud. And we are doing all of that with deep industry expertise and that’s what our clients are looking for, that cognitive capability on the IBM cloud with deep industry expertise and you can see that in our health, you can see that in our IoT and you can see now in financial services which we just announced a couple of weeks ago.”

IBM CEO Ginni Rometty Interview

IBM CEO Ginni Rometty on what it was like when she joined IBM 35 years ago

“What struck me was the seriousness of the kind of things we did. We were building complex back-office banking systems. We were rolling out ATMs. That, to me, is true to this day about IBM. It lives at this intersection of inventing great technology but, more importantly, applying it.”

IBM CEO Ginni Rometty on why IBM almost went bankrupt in the 1990’s

“We stayed too long in one era and had to reinvent ourselves, which, by the way, wasn’t the first time. We’re the only tech company that is 105 years old, the only one that has transformed multiple times. IBM existed a good 50 years before mainframes—we started with scales. To this day, mainframes are still here. They’ve been reinvented, and they’re still 10 percent of our business. They run airline systems. They settle currency exchanges.”

On the company’s current transition

“Typically, when there’s been a transition time in our industry, it’s been driven by one big change. This time there were multiple changes—data, cloud, mobility—all happening at once, and that accelerated the change both for us and our customers.  On my first official day, at 7 a.m., I went to our primary research lab in Yorktown Heights New York and broadcast to all of IBM from there. We are still the largest commercial research organization in the world. There are 12 labs around the world, more than 3,000 researchers. Last I checked, we take 10 percent of the world’s Ph.D.s in math. I said there will be a new way of computing, and it’s going to be driven by this huge amount of data. It’s going to transform industries, and it will change the way the IBMer works.”

 

Source: Bloomberg Interview

IBM Q2 2016 Earnings Call

IBM CFO Martin Schroeter said the company is still focusing on their strategic imperatives which include growing their security, mobility, analytics, and cloud offerings

“As I said, we continued to deliver double-digit revenue growth in our strategic imperatives. Over the last 12 months, strategic imperatives delivered $31 billion in revenue, and now represent 38% of IBM. Growth was led by cloud, where our revenue was up 30% to $3.4 billion in the quarter, and over $11.5 billion over the last year so good progress in cloud. Looking at revenue from a segment perspective, the strongest growth came from cognitive solutions led by our analytics and cognitive capabilities and security.”

Performance across different geographies varied

“Our revenue is down 2.5%, and on a geographic basis Americas was down 2%. This was an improvement from last quarter’s rate across the U.S., Canada and Latin America. Europe was weaker, due primarily to Germany and Switzerland. And Asia Pacific was down about 2%. And with strong growth in India once again, and sequential improvement in all of the BRIC countries, the BRIC’s returned to growth.”

Their enterprise cybersecurity offering is resonating with customers

“Security had strong revenue growth and together with our Security Services we outpaced the market by 3X. Our momentum is driven by our unique market position. We have built an extensive security portfolio tailored to the needs of our clients for integrated security across their entire operations. As a result, we’re the number one enterprise security software and services provider and hold a leadership position in 12 of the 14 segments according to Forrester, IDC and Gartner.”

Seeing pricing pressure in the more commoditized parts of the IT services industry

“And in some of the traditional service areas that are not as differentiated, we’re seeing price and profit pressure. We continue to invest and shift resources to our higher value services around digital and cognitive.”

IBM CFO Martin Schroeter said he believes the Brexit will have little impact on the business

“I don’t think that Brexit coming at the end of the quarter helped us at all, but we obviously finished kind of right where we expected to finish. And when we look at our full view of the year, we don’t see an impact, if you will, that has any real materiality on us. And that’s why we continue to hold our operating EPS. So it certainly didn’t help but, again, nothing that said we should change our operating EPS for the year.”

They’re trying to help their clients build new markets and products

“So we’re not only doing that with our existing clients and not only doing that in kind of a traditional IT, but in some cases we’re building entirely new businesses, and entirely new markets. And so that, you know, for many is beyond what some of you would focus on in terms of infrastructure, but it’s becoming a bigger and bigger part of what IBM is becoming, and again it’s our view of where value will be created for clients and for our investors.”


SK Additions:

Currency impact will moderate in the second half

“And of course, we’ve talked about the impact of currency on our profit growth in 2016, due primarily to the roll-off of last year’s hedging gains. We can’t predict where currently will go from here, but at current spot rates the impact from currency will moderate in the second half due to year-to-year hedging dynamics and a slightly better translational environment.”