The paragraph introduces an IBM earnings presentation, led by Olympia McNerney, with key figures like Arvind Krishna and Jim Kavanaugh also present. Olympia announces the availability of the presentation's remarks and provides information regarding non-GAAP measures and forward-looking statements. Arvind Krishna highlights IBM's strong performance in 2024, noting 3% revenue growth and significant cash flow. He expresses pride in the company's achievements as they close out their mid-term model set in 2021.

In this paragraph, the company reports having met or exceeded its financial targets, with a revenue growth of 6% CAGR over recent years. The software segment excelled with a 9% growth in 2024, while Red Hat achieved double-digit growth. Infrastructure aligned with expectations, and Consulting reached high-single-digit growth, though slightly under in 2024. Investments in partnerships and GenAI are expected to boost future Consulting growth. Despite macroeconomic challenges like geopolitical tensions and supply-chain issues, IBM emphasizes the importance of technology for business growth and positions itself as a leader in business transformations. The software segment represents 45% of the business, growing double-digits with a strong 11% revenue increase in the fourth quarter.

The paragraph highlights IBM's growth, led by Red Hat's significant performance, and underscores the strength of its Consulting Advantage platform and generative AI leadership. Notably, IBM's z16 is celebrated as its most successful infrastructure program, with plans to launch the z17 in 2025. The AI segment is growing rapidly, with $5 billion in their GenAI business, primarily driven by Consulting. IBM offers a diverse AI portfolio, including its Granite models, which are notably cost-efficient. Open-source solutions like RHEL AI and OpenShift AI provide robust AI foundations. There's notable progress with watsonx middleware solutions and AI-related products, and IBM's recent innovations include the OpenShift Virtualization Engine and the Telum II processor for enhanced AI capabilities.

IBM announced RISE with SAP on IBM Power Virtual Server, facilitating a smooth migration to the cloud for over 10,000 clients using SAP on IBM Power. The company is focusing on business transformation through its Consulting Advantage platform and emerging technologies, evidenced by over 75 quantum systems deployed globally and a new collaboration with Illinois for a National Quantum Algorithm Center in Chicago. Mergers and acquisitions, like the acquisition of Neural Magic, bolster IBM's AI solutions. High-profile clients such as NatWest, Lockheed Martin, and L'Oreal are utilizing IBM's advanced AI capabilities, while partnerships with UFC and Ferrari enhance operational efficiency. IBM is collaborating with the U.K. Home Office on the Emergency Services Network, supporting emergency responders. The company's ecosystem grows with partnerships with industry leaders like AMD and Microsoft. IBM anticipates revenue growth over 5% and $13.5 billion in free cash flow by 2025, with more updates to be shared at the Investor Day on February 4. Jim will detail the quarterly results next.

In the reported year, the company achieved $63 billion in revenue and $12.7 billion in free cash flow, with significant growth in operating pre-tax income and earnings per share. Revenue growth and margin expansion led to increased profitability and strong free cash flow, driven by strong Software performance and strategic portfolio management. Although consulting revenue faced challenges with market dynamics, software revenues rose by 9%, and the infrastructure segment showed substantial growth through its z16 program. Overall, operating gross and pre-tax margins expanded significantly, marking a high point for the company in terms of profitability and operational performance. In the latest quarter, the company generated $17.6 billion in revenue, exceeding expectations.

In the reported quarter, software growth accelerated by 11% due to strong performance in areas like Red Hat, Automation, Data & AI, and Transaction Processing, while Consulting declined by 1%. Despite a 6% drop in Infrastructure, operating gross and pre-tax margins improved notably. The company invested in innovation, evidenced by a 13% increase in R&D expenses, and maintained its operating tax rate. The operating earnings per share rose by 1% to $3.92, and the full-year free cash flow increased by $1.5 billion to $12.7 billion, driven mainly by adjusted EBITDA growth and transaction proceeds. The company strategically managed its retirement plans to lower cash requirements and achieved a record high free cash flow margin. The company also invested over $3 billion in acquisitions and returned over $6 billion to shareholders through dividends.

The paragraph highlights the company's strong financial performance, with $14.8 billion in cash and reduced debt of $55 billion. Software revenue growth reached 11% in the fourth quarter, particularly driven by Red Hat's 17% growth. The company surpassed its growth expectations and saw continued demand for hybrid cloud solutions. OpenShift became a $1.4 billion ARR business, growing at 25%, with increasing Virtualization engagements and a recovery in consumption-based services. Red Hat's revenue under contract continues to grow, supporting strong recurring revenue. The Hybrid Platform & Solutions ARR rose to $15.3 billion. Transaction Processing also performed well, benefiting from increased capacity demands and contributions from Watson AI's Code Assistant for Z.

The paragraph highlights the company's growth through new product introductions and strategic acquisitions. Significant organic growth, aided by demand for generative AI products like Concert and AI assistants, has bolstered their Software segment. Newly launched products, such as the next generation watsonx Code Assistant and Guardium Quantum Safe, contribute to their robust portfolio centered around hybrid cloud, automation, data, and transaction processing. The company's performance benefits from acquisitions, including Neural Magic to boost AI capabilities, and anticipates further growth from the pending HashiCorp acquisition. Despite a 1% decline in Consulting revenue, the company focuses on enhancing digital transformation and AI initiatives in response to shifting client priorities amidst a dynamic macroeconomic environment.

In the quarter, signings grew by 23%, driven by generative AI's contribution of $1.5 billion in new bookings, highlighting the company's expertise in AI-driven digital transformations. The book-to-bill ratio improved to 1.21%, with an 8% increase in the overall backlog. The Red Hat practice achieved record signings and double-digit revenue growth, reaching nearly $3 billion in annual revenue. Strategic partnerships, notably with AWS and Azure, contributed to growth in signings and revenue. Recent acquisitions like Accelalpha and the planned acquisition of Applications Technology Software aim to enhance service capabilities. Business Transformation revenue grew by 2% due to strong transformational projects, while Technology Consulting and Application Operations saw declines as clients shifted spending to cloud-based services. Consulting profit margins expanded slightly to nearly 12% due to productivity improvements.

The article discusses IBM's Infrastructure segment, highlighting a 6% decline in revenue due to product cycle dynamics. Within this segment, Hybrid Infrastructure fell by 8% and Infrastructure Support remained unchanged. IBM Z revenue decreased by 20% for the quarter, yet the product cycle has outpaced prior ones with a 30% increase in installed MIPS over nearly three years. Distributed Infrastructure revenue rose by 2%, driven by significant growth in storage due to new innovations supporting AI workloads. Although there was a sequential increase in gross profit margin, the segment's profit margin decreased by 320 basis points in the quarter, due to the product cycle and ongoing investments. For the year, the segment profit margin was 17.5%. IBM met or exceeded its mid-term goals and plans to boost revenue growth to over 5% and enhance free cash flow, aiming for $13.5 billion by 2025.

The paragraph outlines IBM's financial expectations and growth strategies for the future. Despite a strong dollar creating a slight revenue headwind, IBM anticipates revenue growth driven by various business segments. Software is expected to approach double-digit growth due to a strong portfolio and acquisitions, with Red Hat projected to see mid-teens growth. Consulting is set for low-single-digit growth, supported by backlog levels and record signings, while a new mainframe launch in 2025 should contribute to Infrastructure's growth. IBM also expects operating pre-tax margins to improve by over half a point, continued by strategic portfolio and productivity initiatives, despite acquisition-related dilution. Free cash flow is projected to reach $13.5 billion in 2025, driven by double-digit adjusted EBITDA growth, though offset by tax and capital expenditure increases. Their strategy focuses on investing in innovation and skills while expanding profit margins and financial flexibility, achieving $3.5 billion in annual run rate savings by the end of 2024.

In the paragraph, the speaker is discussing expectations for the upcoming first quarter, predicting consistent constant currency revenue growth and workforce rebalancing similar to the previous year. They mention benefiting from a $241 million gain from selling The Weather Company and predict a 50 basis point expansion in operating pre-tax margin, notwithstanding year-over-year impacts. The speaker anticipates the first quarter tax rate to be slightly lower than the full-year rate but still higher than the previous year. They express confidence in achieving durable growth and look forward to future developments in 2025 and beyond, with plans to provide more details at an upcoming Investor Day on February 4. Finally, they open the floor to questions, with Olympia McNerney setting ground rules for the Q&A session. Amit Daryanani from Evercore ISI asks about the linearity of the calendar year 2025 guidance, specifically inquiring about the first half versus the second half, given potential consultancy and mainframe impacts later in the year.

In the article's paragraph, James Kavanaugh expresses satisfaction with the company's strong financial performance, exceeding expectations in revenue, profitability, earnings per share, and free cash flow. He shares confidence in achieving above-industry revenue growth of over 5% by 2025. He discusses the successful execution of the Software segment, noting seasonal trends and ongoing innovation investments. In Consulting, the company finished the year with record-high signings and a substantial backlog, anticipating accelerated growth in the year's second half. The Infrastructure segment performed well, particularly in its mainframe program, and expects growth to resume in the second quarter, supporting the company's annual growth projections.

In the paragraph, Wamsi Mohan from Bank of America asks Arvind Krishna about IBM's plans for mergers and acquisitions (M&A) in a potentially more favorable regulatory environment and in light of their strong free cash flow performance. Arvind Krishna responds by expressing optimism about the regulatory climate, which may allow reasonable deals to proceed more smoothly and quickly. He explains that IBM has substantial free cash flow available and considers a three-year flexibility window for financial planning. They are prepared to pursue M&A opportunities that align with their criteria, mentioning that they have been considering Hashi as a potential target for almost a year.

The paragraph discusses the potential for increased business opportunities as the environment becomes more favorable for deals. It highlights DeepSeek as a validation of the company's focus on smaller models and efficient training times for enterprise deployment of large language models, resulting in significant cost reductions. The speaker expresses optimism about the benefits for enterprise clients and anticipates others will adopt similar approaches. Jim Schneider from Goldman Sachs poses questions about IBM's Consulting and AI Software businesses. He inquires about IBM's historical lag compared to peers in Consulting, confidence in revenue recovery for the latter half of the year, and mentions a substantial $1 billion book of business in AI Software.

In the paragraph, James Kavanaugh discusses the dynamic macroeconomic environment affecting consulting companies and highlights IBM's strategic focus on digital transformation and GenAI, identifying it as a key area of growth. Despite reduced discretionary spending, IBM has gained significant market share and established a leadership position with over $4 billion in GenAI business. This focus, coupled with clients' strategic provider decisions, positions IBM's consulting division for long-term growth, also positively impacting its Software component.

In the paragraph, Arvind Krishna discusses IBM's strategies and developments related to their software products, particularly emphasizing the watsonx family. This product line includes tools that incorporate large language models (LLMs) and AI technology, focusing on modernizing clients' COBOL infrastructures and offering code assistance for various programming languages. He highlights the strong performance and market presence of these tools, as well as the integration with Red Hat for AI model deployment and hardware optimization, following their acquisition of Neural Magic. Krishna underscores that while LLMs will influence numerous areas, the highlighted products are directly driving business growth and are accounted for in their business metrics. Olympia McNerney then prompts the operator to proceed to the next question from Ben Reitzes.

The paragraph features a discussion between an interviewer and James Kavanaugh, where they touch on two main topics related to IBM's business: the successful shift towards software, specifically highlighting the growth and profitability of the TPP (Transactional Processing Platform) within software, and the role of AI in its performance. They also discuss IBM's infrastructure, particularly the strong performance of the mainframe business that shows significant revenue growth and client engagement compared to ten years ago. Kavanaugh attributes this success to IBM's strategic roadmap and execution since the Kyndryl spin-off, with plans for further progress to be discussed at an upcoming Investor Day.

The paragraph discusses the growth and importance of mainframe MIPS (Million Instructions Per Second) in mission-critical workloads across various industries. The company leverages mainframe economics for high revenue and profit, fueling software innovation. Transaction Processing grew by 10% in 2024, driven by workload capitalization, innovation with tools like Watsonx Code Assistant for Z, and price optimization. Looking ahead to 2025, they anticipate mid-single-digit growth in Transaction Processing, with software continuing to grow and potentially approaching double-digit growth. The paragraph ends with Bo Yin from Jefferies asking Arvind Krishna about the business climate and customer software budgets for 2025.

The paragraph highlights the current challenges and optimism in the business climate as discussed at Davos, including geopolitical tensions, interest rates, inflation, demographics, skilled labor shortages, and supply chain issues expected to persist into 2025. Despite these, there is optimism about growth in 2025, driven by innovation, growth, and regulation. Technology, particularly software, is deemed essential for business growth, customer service, marketing, and efficiency. Consequently, software budgets are likely to be the last reduced, as technology helps companies achieve goals and maintain competitive advantages. Finally, the paragraph transitions to a Q&A session, with Erik Woodring from Morgan Stanley asking a question.

The paragraph features a discussion between Erik and James Kavanaugh about the 2025 financial outlook, particularly in relation to HashiCorp. James confirms that the 2025 guidance includes the anticipated acquisition of HashiCorp. He expresses confidence in the company's financial performance, highlighting significant achievements in free cash flow growth, which is outpacing revenue growth. Over the past few years, the company has achieved its highest-ever free cash flow margin, surpassing its mid-term model expectations. This success is attributed to strategic portfolio optimization towards a software-centric hybrid cloud platform and disciplined execution, giving James confidence in their 2025 guidance despite any dilution effects from the HashiCorp transaction.

The paragraph discusses IBM's financial outlook, highlighting the impact of Hashi on revenue growth and dilution, suggesting an estimated $300 million contribution and $0.30 dilution. Despite this, the financial model is attractive due to strategic synergy and growth in adjusted EBITDA and free cash flow. IBM aims for sustainable mid-single-digit growth, projecting over $1.5 billion in adjusted EBITDA by 2025, despite increased investments in software, AI, mainframes, and quantum computing, alongside higher cash taxes and net interest costs. Ultimately, IBM is positioned as a high-quality, sustainable free cash flow generator.

The paragraph addresses a technical issue that prevented the completion of a Q&A session during a call or meeting. The speaker apologizes for the inconvenience and invites participants to attend the upcoming Investor Day on February 4, where they can ask more questions. Arvind Krishna reassures attendees about the company's strategy for sustained revenue growth and expresses confidence in the business's ongoing transformation and future dialogues.

This summary was generated with AI and may contain some inaccuracies.