IBM CEO: AI Business Grows $1 Billion With ‘Good Traction’ Since Last Quarter While Consulting Is Flat

‘We’ve got very good traction in our GenAI products as well as in our automation suite and we can look at our pipelines and expect that those will be maintained,’ IBM Chairman and CEO Arvind Krishna said.

IBM CEO Arvind Krishna said the last quarter saw “good traction” in Big Blue’s enterprise AI business, growing $1 billion quarter to quarter with a mix of consulting and software placing them “in an early leadership position.”

“Our book of business related to generative AI is now over $3 billion inception to date, up more than $1 billion quarter over quarter,” Krishna said during the company’s third-quarter earnings call Wednesday. “The mix is roughly one-fifth software and four-fifths consulting signings. This performance has placed us in an early leadership position, which is crucial at the onset of any technology shift.”

Krishna said IBM’s AI portfolio provides customers a comprehensive set of tools to deploy AI within their enterprise, as well as the software customers need to win value from AI products in the future.

“We’ve got very good traction in our GenAI products as well as in our automation suite and we can look at our pipelines and expect that those will be maintained,” Krishna said. “Given that we also see a lot of mainframe deployment the mid, underlying capacity there would power ahead the mainframe or the TPS software. You put that together with the already announced M&A of Hashika and then planned M&A that we will have over the year, and that gives us a lot of confidence on software.”

IBM’s third quarter revenue came in at $15 billion, up two percent with $2.5 billion of income for earnings per share of $2.30. The company’s software business grew revenue 10 percent to $6.5 billion, while IBM’s infrastructure business was down seven percent to $3 billion. The company expects fourth quarter results to be similar to this one.

Shares tumbled 6.7 percent, or $15.63 dollars, on Thursday to trade at $217.18.

Krishna said for IBM’s consulting business, the market “remains dynamic,” with massive opportunities to help organizations prepare for AI but flat growth on revenue of $5.2 billion. But while Krishna is confident that IBM can win in that space, global upheavals are causing customers to think twice before committing big-spends.

“A pause in discretionary spending is impacting our consulting business,” he said on the call. “This is due to economic uncertainty, which stems from several temporary factors including geopolitical issues, upcoming elections, and the changing landscape of interest rates and inflation levels. “

Software revenue now makes up 45 percent of Big Blue’s revenue, which Krishna said shows IBM’s focus on organic innovation and repositioning the portfolio.

“You can see this in our quarterly results as well as we delivered strong and accelerating software revenue growth of 10 percent,” he said.

Krishna said 80 percent of those sales come in the form of recurring revenue. During the last quarter ARR for IBM’s Hybrid Platform And Solutions now stands at $14.9 billion, up 11 percent.

Krishna said IBM is celebrating the fifth anniversary of its Red Hat acquisition. Since the deal was announced, Red Hat revenue has doubled to $6.5 billion, while delivering CAGR in the mid-teens. Meanwhile, IBM said OpenShift grew from $100 million in annual recuring revenue to $1.3 billion.

“We continue to drive innovation, announcing new capabilities including Ansible 2.5, RHEL AI and OpenShift AI,” Krishna said on the call. “Red Hat was also named a Leader for the second consecutive year in the 2024 Gartner Magic Quadrant for Container Management.”