International Business Machines Corporation (NYSE:IBM) Q4 2019 Earnings Conference Call - Final Transcript

Jan 21, 2020 • 05:00 pm ET

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International Business Machines Corporation (NYSE:IBM) Q4 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
James J. Kavanaugh

cloud journey including consulting and technology services for Red Hat in multi-cloud management. We expanded the reach of our Watson AI offerings, and we are leading the industry in our approach to trust and transparency for data and AI. We continue to deliver innovation in areas like our new z15 mainframe and quantum, and we divested select software and services businesses as we continue to prioritize our investments and optimize our portfolio.

With 3% revenue growth, we started to see the benefits in our fourth quarter results. Cloud & Cognitive Software revenue was up 9%. We had growth in all three lines of business, reflecting demand across our software portfolio. We had good adoption of our Cloud Paks, continued growth of security, and Red Hat again posted strong performance. In Global Business Services, we had continued growth in consulting and in application modernization projects as we help our clients on their digital journeys. We're also seeing this in our GBS signings this quarter, including acceleration in new Red Hat engagements.

Global Technology Services revenue was down 4% in line with the expectations we discussed last quarter. We expanded Global Technology Services gross margin consistent with our focus on managing the business for margin and profit. And in Systems, we had a good start to our z15 cycle and growth in high-end storage resulting in double-digit revenue growth and gross margin expansion in this segment.

Across our segments, our cloud revenue growth improved to 23% this quarter, and our cloud revenue for the year was $21 billion. By leveraging our technology, incumbency and expertise to help our clients with their journeys to cloud, it now represents 27% of our revenue. We know there's a lot of interest in our hybrid cloud approach including Red Hat, so I'll focus on that upfront.

As we've said, the next chapter of cloud will be driven by mission critical workloads manage in a hybrid multi-cloud environment. This will be based on a foundation of Linux with Containers and Kubernetes. This quarter we had strong performance in RHEL and OpenShift. Red Hat's normalized revenue was up 24%, eclipsing $1 billion in a quarter for the first time. In August, we introduced Cloud Paks, cloud-native software that simplifies deployment, reduces operational costs and allows clients to build once and run anywhere. Cloud Paks bring together IBM's middleware, AI, management and security, and Red Hat's OpenShift platform. Our strong performance in Cloud Paks this quarter is an example of the synergy from the IBM and Red Hat combination.

As we look forward, the largest hybrid cloud opportunity is in services, advising clients on architectural choices, moving workloads, building new applications, and of course, managing them. With IBM services expertise in digital reinventions and managing mission critical workloads, we are well positioned to help our clients on this journey. And now in the fourth quarter, demand for our cloud capabilities continue to ramp and we're starting to realize the synergies across IBM and Red Hat. We see it in