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

Jan 21, 2020 • 05:00 pm ET


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


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Q & A

[Operator Instructions]

Our first question comes from Wamsi Mohan with Bank of America. Your line is open.

Wamsi Mohan

Yes. Thank you. Jim, nice to see the strong overall revenue performance and Red Hat performance as well. I know you don't explicitly guide revenues, but can you help at a high level bridge the big items that we should be thinking about in 2020 relative to 2019 for revenues? And then do the same for free cash flow. I know you touched a little bit on capex. But if you could maybe break it down between core business, Red Hat, tax, pension, what are some of the larger puts and takes that we should think about embedded in that $500 million increase year-to-year? That would be great. Thank you.

James J. Kavanaugh

Okay. Thank you, Wamsi, and I appreciate the compliment to all the IBM-ers around there, who have been working hard. Let me start out as we always talk about our guidance. It's the first time we're coming out with 2020 guidance overall. And as we always do, we take into account multiple scenarios trajectory of our business, operational indices, business plans, etc., and all that gives us confidence in the expectation we went out with regards to $13.35 at least on EPS, and approximately $12.5 billion. But there are a couple of things underneath that, and some of them, which you talked about, let me just share some of the color.

So first around currency. Currency, we expect on a full year to be pretty de minimis between 0 point and 1 point of a headwind, a little bit different what we've been challenged with the last few years, but most of that's going to be here in the first half and in the first quarter at current spot rates. Second, we've done a lot of work around our portfolio optimization, divest the non-core assets, that is going to be about 1 point impact on the year and 2-point impact in the first half, very similar to what we just finished in second half of the year. Three, we're continuing to deal with the deferred revenue impairment and we were very transparent on Investor Day, we gave you the four-quarter roll out, and that's predominantly a first half statement, second half it's lessen. And four, embedded in our results as we talked about our prepared remarks, we'll go through. In GTS, we are going to take aggressive structural actions to reposition the business overall. I would tell you, if you look at the last few years, that will probably be on the high end of that. And when you take a look at our guidance on tax, which again to be fully transparent 7% to 9%, that is all-in including discretes, we expect a tax discrete benefit in the first quarter that will pretty much offset the charge, and on a full year basis be immaterial. So that's some of the color behind the overall.

Now, when you talk about the full year, I