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IBM Maintains Momentum and Extends Its Hybrid Cloud and Automation Reach as AI Becomes the Next Strategic Workload

Rick Villars, Robert Parker, Ritu Jyoti, Jason Bremner, Stephen Elliot — Tue, 07 May 2024 04:00:00 GMT

IBM’s earnings release for 1Q 2024 reported revenue of $14.5bn (+3% y/y @ cc, +1% y/y as reported) – the balance of this document will use constant currency growth unless otherwise noted. IBM generated free cash flow of $1.9B for the quarter. Concurrent with its earnings release, IBM announced its intent to acquire HashiCorp, Inc., a provider of multi-cloud infrastructure automation software, for $6.4 billion. IBM expects to close by the end of 2024, with HashiCorp operating as a division inside IBM.

Other important company metrics align with the currently positive, but uncertain outlook for 2024. Consulting signings were up 4% y/y which yielded a current annual book to bill ratio of 1.15. Annual recurring revenue (ARR) on the software side ARR (after removing The Weather Company and security services which were sold during the quarter), is now $13.9 billion, up over 8% y/y. In comments on the AI Pivot, CEO Arvind Krishna reported, "book of business related to watsonx and generative AI [since launching in May 2023] is greater than $1 billion, with sequential quarter over quarter growth. Like last quarter, this remains heavily weighted towards consulting.”

SOFTWARE

Software revenue grew 6% in Q1 (y/y). Transaction processing, the most legacy driven part of the portfolio, grew 4% y/y and continues to benefit from IBM zSystem sales. Hybrid Platforms and Solutions grew 7% while the quarter saw stronger growth from Red Hat (9%). Automation grew 13% y/y, benefiting from the addition of Apptio. Y/Y growth in Data & AI (just 1%) and Security (down 3%) offset stronger growth in other areas.

IBM confirmed that Software revenue growth drivers for the year will include Red Hat growth, impact of recent acquisitions, and strengthening levels of recurring revenue in areas like watsonx. The biggest news was IBM's announced acquisition of HashiCorp. This strategic move marks a significant step for IBM in strengthening its hybrid cloud automation capabilities. It provides IBM with the leading footprint and installed base of customers for Infrastructure as Code capabilities and is generally complementary to the Red Hat Ansible Automation Platform. Room for expansion also exists with 89% of Hashicorp’s revenues coming from customers with over $100K ARR, representing 19% of paying customers.

CONSULTING

Growth for IBM Consulting was just 2%, but this remains near market averages. The growth was slightly stronger in transformation (3%) and Technology consulting (3%), but application operations were down 1% y/y. IBM noted that they continue to see clients prioritizing large data and technology transformation projects focused on driving productivity with AI and analytics, contributing to signings growth of 4% in the quarter. IBM saw a lengthening of backlog duration driven by large scale digital transformations, however. Clients also reduced levels of revenue realization in the quarter as clients tightened discretionary spending.

INFRASTRUCTURE

IBM's Infrastructure business was up just 0.2% in Q1 (y/y), with broad-based demand for hardware offerings across IBM Z (5%) Power and Storage Distributed Infrastructure (6%) but overall growth was drawn down by a 7% decline in Infrastructure Support. IBM noted that it is working with over 100 clients on the application of AI on z16zSystems.

The decrease in infrastructure support was influenced by new systems sales that included extended warranties instead of short-term support. Despite this, there were areas of growth within the infrastructure segment. particularly the z-16, which is now eight quarters into its cycle and continues to exceed growth expectations. Both Power10 and Storage segments experienced growth, driven by data-intensive workloads and storage deployments related to IBM Z.

As AI becomes a strategic workload, IBM must ensure that its own infrastructure offerings, particularly the IBM Z series with its integration of on-chip AI processing capabilities and support from the Watsonx platform, are seen as unique advantages. The introduction of the Telum chip allows for real-time AI inferencing, highlighting IBM's commitment to innovation in AI infrastructure. IBM is also fostering an open innovation ecosystem around AI, drawing parallels to the early days of Linux, aiming to make open-source AI models performant for enterprise use. This strategy includes collaboration with Red Hat to drive the development of open-source AI solutions, demonstrating IBM’s ongoing commitment to adapting offerings to meet the needs of its clients in harnessing AI capabilities across environments.

The Rising Value of Co-Creation Activities in Optimizing Vendor-Carrier Relationships Within Complex Ecosystems

Josh Budd, Andreas Storz, Stuart Wilson — Tue, 07 May 2024 04:00:00 GMT

This IDC Market Perspective analyzes the engagement model between technology vendors Cisco and Dell and telecom operators with a focus on co-creation activities. It explores how technology vendors support, engage, and interact with telecom operators to optimize these relationships and how this type of collaboration integrates alongside wider partner engagement frameworks and ecosystem strategies.

"Building and maintaining co-creation teams and resources is an indirect investment that major infrastructure and networking vendors are utilizing to drive pull through sales of solutions and services into telecom operators based on mutually beneficial business outcomes," said Stuart Wilson, senior research director, EMEA Partnering Ecosystems at IDC.

Worldwide Enterprise Peripheral System Support and Deployment Services Forecast, 2024–2028

Rob Brothers — Tue, 07 May 2024 04:00:00 GMT

This IDC study provides the forecast for the worldwide enterprise peripheral system support and deployment services market for the 2024–2028 period. This market covers government/education, SMB, and enterprise support sales defined by business segments based on the number of employees.

"The hardware support market is a very mature segment," says Rob Brothers, vice president, Datacenter and Support Solutions at IDC. "But with GenAI PCs, and Windows 10 going end of support in 2025, these events will drive demand for IT services such as deployment and asset disposition as well as others."

IDC Forecasts Slower Growth for Global Telecommunications Services Market: Could AI Help Telcos to Maintain Healthy Margins?

Fri, 03 May 2024 04:00:00 GMT

Worldwide spending on Telecom Services and Pay TV Services reached $1,509 billion in 2023, an increase of 2.1% over 2022, according to the IDC Worldwide Semiannual Telecom Services Tracker.

Tablet Shipments Show Signs of Recovery in Q1 2024, According to IDC

Fri, 03 May 2024 04:00:00 GMT

Worldwide tablet shipments grew 0.5% year over year in Q1 2024, totaling 30.8 million units, according to preliminary data from the IDC Worldwide Quarterly Personal Computing Device Tracker.

AT&T Delivers Another Strong Quarter Driven by 5G and Fiber Growth

Jitesh Bhayani — Thu, 02 May 2024 04:00:00 GMT

On April 24, 2024, AT&T announced its first quarter 2024 financial earnings. Top-line revenue was $30.0 billion, a YoY decline of 0.4%. AT&T's Mobility and Consumer Broadband were the major drivers of this growth, while the company's operations in Mexico also contributed to positive results. The postpaid phone net adds continued to highlight strong momentum as well. The company also achieved free cash flow of ~$3.1 billion and was up by $2.1 billion from a YoY perspective. The major negative for AT&T continues to be its decline in Business Wireline operations, a 7.8% YoY revenue decline, which is partially offset by growth in other parts of the business such as fiber and other advanced connectivity services.

What Are the Top Network Priorities of Wholesale Telcos in EMEA?

Jan Hein Bakkers — Thu, 02 May 2024 04:00:00 GMT

This IDC Survey Spotlight highlights data from IDC's Europe, the Middle East, and Africa (EMEA) Telco Survey, conducted in July 2023. The data provides insights into the key network priorities of wholesale operators.

Meta's Release of Llama 3 Is Set to Catalyze Generative AI Innovation as Developers Embrace a Best-in-Class Open Large Language Model

Arnal Dayaratna — Mon, 29 Apr 2024 04:00:00 GMT

On April 18, Meta announced the release of Llama 3, the family of large language models that constitutes the successor to the Llama 2 family of models that Meta released in July 2023. This release of Llama 3 is defined by 8B and 70B parameter models that include pretrained and instruction fine–tuned versions for each. This document reflects on the significance of Llama 3 as a developer tool that enables the development of bespoke digital solutions that leverage a foundation model. As such, the document examines Llama 3's differentiators and implications for developers, software development, and the start-up community.

Worldwide Smart Vacuum Market Shipped 18.5 Million Units in 2023, According to IDC

Mon, 29 Apr 2024 04:00:00 GMT

Worldwide shipments of smart vacuum devices reached 18.5 million units in 2023 with a total market value of $7.8 billion, according to new data from the IDC Worldwide Quarterly Smart Home Device Tracker.

AST SpaceMobile and Lynk Global: Serious D2D Contenders Against Starlink?

Simon Baker — Thu, 25 Apr 2024 04:00:00 GMT

This IDC Market Perspective provides an overview of key operational and financial aspects of two aspirational direct-to-device (D2D) players AST SpaceMobile and Lynk Global. It identifies aspects of the market open to them and details their rivalry with the current dominant LEO satellite player Starlink.

"D2D is an important new market for MNOs. They should look beyond the hype of its immediate rewards and focus on longer-term issues regarding infrastructure partners with which they wish to work. European MNOs will need to accept current options; they will need to work with players based in North America. Governance of LEO systems will often be complex as they will have global operations and investors and this is a key area MNOs need to consider as they weigh partnerships and possible investments," said Simon Baker, senior research director, IDC EMEA.