‘How can you service customers better? How can you market better? How can you reach people more? How can you get things done in minutes instead of hours? So software is the basis for all of those capabilities. To a person, the budget that they will cut last if there is ever an issue is their software budget,’ says IBM CEO Arvind Krishna.
IBM’s better-than-expected fourth fiscal quarter sent its stock soaring nearly 12 percent Wednesday to Friday and commentary from the cloud and mainframe giant’s leadership shows positive signs for tech acquisitions, business spending and artificial intelligence.
The Armonk, N.Y.-based vendor, which has thousands of partners in its ecosystem, forecasts 5-plus percent revenue growth year over year in 2025, with software growing double digits, Red Hat growing in the midteens, consulting growing in the low single digits and infrastructure and mainframes adding a point to revenue growth, IBM CFO Jim Kavanaugh said on the latest quarterly earnings call.
Although IBM Chairman and CEO Arvind Krishna (pictured) didn’t mention newly sworn in U.S. President Donald Trump or other world leaders, he said he anticipates “a regulatory environment that is a bit more rational and a bit more pro-competition.”
[RELATED: IBM CEO: GenAI With Consulting Driving Future Growth]
IBM Q4 Earnings
IBM’s $7 billion purchase of Terraform creator and cloud provider HashiCorp, unveiled in April and intended to close before 2025 started, has received scrutiny from the U.K.’s Competition and Markets Authority and Australian Competition and Consumer Commission.
“We think reasonable deals have a very good chance of getting through in a reasonable amount of time and not being held up for years,” Krishna said. “With that context, that means, obviously, we are going to lean in more.”
Speaking specifically about the nearly yearlong HashiCorp deal, Krishna said “we certainly hope that with a friendlier environment, that gets done soon, and that then begins to open up the aperture for getting more deals done.”
Kavanugh said that IBM is factoring HashiCorp revenue as part of its guidance. “We fully expect to close the Hashi transaction in a relatively soon period of time,” the CFO said. He said HashiCorp should contribute about a point of revenue growth to IBM in 2025.
CRN has reached out to IBM to see if the U.S. Department of Justice filing a lawsuit to prevent Hewlett Packard Enterprise’s $14 billion acquisition of Juniper Networks has changed their executives’ view of the regulatory environment.
In a report Thursday, Melius Research predicted that the HashiCorp deal will close in the second quarter of 2025.
Krishna said that he finds “more optimism in the business climate, and there is more optimism on the growth that is possible in ’25 compared to ’24” due in part to improving geopolitics and less “friction.”
He maintained his optimistic view on business technology spending, saying that “everybody believes technology is now essential for helping them grow.”
“How can you service customers better? How can you market better? How can you reach people more? How can you get things done in minutes instead of hours? So software is the basis for all of those capabilities,” Krishna said. “To a person, the budget that they will cut last if there is ever an issue is their software budget. That is what is giving us confidence.”
IBM Weighs In On DeepSeek
Krishna echoed other sentiments from AI leaders about the apparent advancements China-based AI lab DeepSeek has brought to the emerging field.
On the earnings call, Krishna brought to mind Microsoft Chairman and CEO Satya Nadella’s “good news”observation on DeepSeek’s potential breakthrough of a powerful AI model run locally and built with less capital than expected, with that breakthrough perhaps leading to easier adoption of AI.
“DeepSeek, I think, was a point of validation,” Krishna said. “We have been very vocal for about a year that smaller models and more reasonable training times are going to be essential for enterprise deployment of large language models.”
Krishna touted IBM’s own work democratizing AI, seeing “as much as 30 times reduction in inference costs using these approaches.”
“As other people begin to follow that route, we think that this is incredibly good for our enterprise clients, and we will certainly take advantage of that in our business, but I believe that others will also follow that route,” the CEO said.
Kavanaugh said to expect the vendor still adds “a couple $100 million” to its capital expenditures as it invests in software, GenAI, next-generation mainframes and quantum computing.
Mainframe Grows In The AI Era
AI has captured the imagination and attention of the business technology world, but Kavanaugh pointed out that IBM’s mainframe portfolio showed positive momentum in the quarter.
Seventy percent of mainframe clients are growing capacity, measured in millions instructions per second (MIPS). “That is a very different profile than where we were 10 years ago,” he said. “Installed MIPS are up 3X over the last few cycles.”
IBM runs workloads for 97 percent of the mission-critical transactional processing in banking, retail, airlines and other industries. IBM’s transaction processing revenue grew 11 percent year over year ignoring foreign exchange.
Kavanaugh attributed about 4 points of that growth to the capitalization of underlying workloads driving mainframe and 3 points to Watsonx Code Assistant for Z and GenAI monetization on the mainframe platform.
AI Spending Environment Aiding Consulting
IBM exeuctives said the generative AI book of business grew $2 billion quarter over quarter to $5 billion.
Of wider importance to the channel, that spending came mostly in IBM Consulting, No. 6 on CRN’s 2024 Solution Provider 500. Those bookings contributed to IBM saying to expect growth in consulting to accelerate from flat to mid single digits by the end of 2025, particularly in the second half of the year.
Kavanaugh said consulting ended the fiscal year with the “highest recorded ever signings quarter, up 23 percent.”
He cautioned against too much excitement given that consulting is “still dealing with a very dynamic environment around clients prioritizing spend.”
Customers, like IBM itself, “are cutting back on discretionary-based spend so we can fuel investment into digital transformation and GenAI overall,” Kavanaugh said. And winning customers’ trust early in the AI race is important for the consulting business, he said.
“We’re so maniacally focused because enterprise clients are making their strategic provider of choice decisions,” the CFO said. “That is going to be a long-term future vector of growth for consulting for us to win that has a multiplier effect that will drag our software component of our business going forward. So we feel pretty good.”
