International Business Machines Corporation · NYSE:IBM
International Business Machines — Investor Day (August 2019)
55 slides from International Business Machines's investor day presentation, Aug 2, 2019
Slide 1: Introduction
Introduction Patricia Murphy Vice President, Investor Relations IBM
Slide 2: Agenda
Agenda Friday, August 2 IBM + Red Hat: Strategic Overview Ginni Rometty Chairman, President and CEO, IBM 10AM – 12:15PM IBM + Red Hat: Better Together Jim Whitehurst Senior Vice President, IBM and CEO, Red Hat Arvind Krishna Senior Vice President, IBM Cloud & Cognitive Software Mark Foster Senior Vi
Slide 3: Forward-looking statements and non-GAAP information
Forward-looking statements and non-GAAP information In an effort to provide additional and useful information regarding the company’s (IBM’s) historical results and forward-looking financial information on a continuing operations basis, as determined by generally accepted accounting principles (GAAP
Slide 4: IBM + Red Hat: Strategic Overview
IBM + Red Hat: Strategic Overview Ginni Rometty Chairman, President and CEO IBM
Slide 5: Red Hat
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Slide 6: IBM + Red Hat: Better Together
IBM + Red Hat: Better Together Jim Whitehurst Senior Vice President, IBM and CEO, Red Hat Arvind Krishna Senior Vice President, IBM Cloud & Cognitive Software Mark Foster Senior Vice President, IBM Services and Global Business Services Martin Schroeter Senior Vice President, IBM Global Markets
Slide 7: Better Together: Red Hat
Better Together: Red Hat Jim Whitehurst Senior Vice President, IBM and CEO, Red Hat
Slide 8: Value of a platform in open source
Value of a platform in open source Open source projects are winner takes all Successful product becomes the reference standard (e.g. Linux) GSIs ISVs Common skills to build Large market of usage Fewer stacks to support More addressable market Access more workloads Simpler support matrix Access more
Slide 9: From servers to hybrid cloud
From servers to hybrid cloud LINUX CONTAINERS & KUBERNETES Red Hat Enterprise Linux = default choice for the operating system (OS) OpenShift = default choice for hybrid cloud Physical Physical Virtual Physical Virtual Private clouds Public clouds From OS to hybrid cloud = 10x opportunity 10 Red Hat
Slide 10: IBM acceleration of hybrid, multicloud platform creates ecosystem opportunity
IBM acceleration of our hybrid, multicloud platform creates opportunity across the ecosystem SIs/VARs ISVs On-premise infrastructure Public Clouds Developers Ability to address new and migrating workloads Write once, run anywhere New transformation and application development opportunities New and m
Slide 11: Have an early lead, IBM can propel Red Hat
Have an early lead, IBM can propel Red Hat We have early hybrid cloud platform leadership IBM brings massive momentum around workloads IBM’s commercial organizations drive trial, adoption, marquee customers across its installed base IBM software on OpenShift drives platform adoption and usage GBS mi
Slide 12: Better Together: Sell More Software
Better Together: Sell More Software Arvind Krishna Senior Vice President IBM Cloud & Cognitive Software
Slide 13: IBM is the leading provider in a $1.2 trillion cloud opportunity
IBM is hybrid the leading provider in a $1.2 trillion cloud opportunity $1,200 92% of enterprises have hybrid environments* 58% of enterprises have multicloud environments* $1,000 10% of enterprises with hybrid environments are able to support holistic management and agile movement of applications a
Slide 14: IBM Cloud Software becomes the fuel of growth and innovation
IBM Cloud Software becomes the fuel of growth and innovation $1,200 How IBM drives more software revenue: Middleware anywhere Making IBM software cloud native – for private and public clouds $1,000 Preferred destination for mission-critical workloads Red Hat OpenShift on IBM Cloud is the best end-to
Slide 15: IBM + Red Hat deliver the industry's only true hybrid multicloud platform
IBM + Red Hat deliver the industry’s only true hybrid multicloud platform IBM + Red Hat AWS Microsoft Google IBM Public Cloud OpenShift optimized Google Cloud AWS OpenShift Azure OpenShift OpenShift Public Cloud support IBM AWS Outposts Private Cloud OpenShift optimized Traditional on-premises 16 ↻
Slide 16: Making IBM's key software products cloud native for all clouds
Making IBM’s key software products cloud native for all clouds — middleware anywhere Reduce dev time up to 84%1 Make data ready for AI in hours vs. days Eliminate 33% of integration cost2 Reduce manual processes up to 80%3 Reduce IT op expense by up to 75%4 Certifying more than 100 software products
Slide 17: A deeper look: Cloud Pak for Data
A deeper look: Cloud Pak for Data Full data and AI lifecycle platform for hybrid workloads Allows clients to: Virtualize their data 500% faster1 Reduce data prep time by 80%2 Automate 80% of data science effort with AutoAI3 Deploy where the data resides, in hours vs. days4 On-premises Private Cloud
Slide 18: Preferred destination for mission-critical workloads is Red Hat OpenShift on IBM Cloud
The preferred destination for mission-critical workloads is Red Hat OpenShift on IBM Cloud Enterprise proven IBM Cloud is only public cloud developed with Kubernetes — fundamental to IBM businesses and used by more than 1,000 clients. Our public cloud manages over 16,000 production Kubernetes cluste
Slide 19: Hybrid cloud strategy positions us for >$50B in strategic new workloads
IBM’s hybrid cloud strategy positions us for >$50B in strategic new workloads AI/Machine Learning Robotic Process Automation 5G/Telco IoT Location-based Services Augmented Analytics Blockchain Wearables On-premises Private Cloud Microsoft Azure Google Cloud IBM Public Cloud AWS Edge 20 Cloud Paks
Slide 20: Sell More Software: Summary
Sell More Software: Summary Making IBM software cloud native – for all private and public clouds Red Hat OpenShift on IBM Cloud is the best end-to-end stack for mission-critical workloads IBM will drive more Red Hat software through strategic solutioning and integration IBM’s hybrid cloud strategy p
Slide 21: Better Together: Sell More Services
Better Together: Sell More Services Mark Foster Senior Vice President IBM Services and Global Business Services
Slide 22: Significant demand for business and technology services
In Chapter 2, there is significant demand for business and technology services Transforming from the inside-out at scale Modernizing infrastructure; moving mission-critical applications to the cloud Scaling AI across the enterprise 23 Services Demand Transforming workforce Orchestration and integrat
Slide 23: Red Hat accelerates our ability to capture hybrid cloud services opportunity
Red Hat reinforces and accelerates our ability to capture the hybrid cloud services opportunity How IBM drives more services revenue: $1,200 Credibility and reach IBM Services has unique scale, breadth, incumbency and relevance $1,000 Unique Cloud capabilities Differentiated methods, capabilities an
Slide 24: IBM Services has unique scale, breadth, incumbency and relevance
IBM Services has unique scale, breadth, incumbency and relevance IBM Services is the digital, cognitive and cloud partner for clients Digital Strategy & iX Largest combined Services player – $46 billion 250,000 highly-skilled professionals in 170 Countries Cognitive Process Transformation Mission-cr
Slide 25: Differentiated methods, capabilities and assets to de-risk the client cloud journey
Differentiated methods, capabilities and assets to de-risk the client cloud journey Client Journey IBM Services is the trusted and credible partner for the open multicloud journey – Meet clients where they are across Advise, Move, Build and Manage – 80,000+ Cloud Application Services practitioners U
Slide 26: IBM Services incumbency will fuel Red Hat and OpenShift
IBM Services incumbency will fuel Red Hat and OpenShift as the default hybrid cloud platform, creating more entry points for IBM Services Accelerate the adoption of OpenShift New applications Migrate mission-critical workloads to OpenShift Build new workloads and applications on OpenShift Establish
Slide 27: Business transformation journey and services opportunity
Business transformation journey and services opportunity enabled by the cloud journey Intelligent workflows AI/Machine Learning Robotic Process Automation 5G/Telco IoT Location-based Services Augmented Analytics Blockchain Wearables On-premises Private Cloud IBM Public Cloud AWS Microsoft Azure Goog
Slide 28: Sell More Services: Summary
Sell More Services: Summary IBM Services + Red Hat = Trusted Cloud Journey Partner for the Enterprise IBM Services has unique scale, breadth, incumbency and relevance Differentiated methods, assets and capabilities create differentiation to de-risk the client cloud journey Incumbency will accelerate
Slide 29: Better Together: Sell More Red Hat
Better Together: Sell More Red Hat Martin Schroeter Senior Vice President IBM Global Markets
Slide 30: Better Together Sell More Red Hat
Better Together Sell More Red Hat Martin Schroeter Senior Vice President IBM Global Markets IBM Investor Briefing 2019
Slide 31: Our Go-to-Market Priorities
Our Go-to-Market Priorities Preserve Operating Independence Maintain Ecosystem Neutrality Mobilize IBM and Invest for Scale All IBM client-facing teams and ecosystem partners are activated to leverage established relationships, expand reach and create new demand through combined offerings. Red Hat d
Slide 32: How we will accelerate Red Hat's growth trajectory
How we will accelerate Red Hat’s growth trajectory Grow Red Hat with IBM’s largest clients “We are constantly exploring emerging technology as we transform air travel; IBM + Red Hat will be an essential part of our digital transformation.” - Airline CEO, USA Expand Red Hat in ~30 select countries “V
Slide 33: Leverage relationships at IBM's largest accounts
Leverage relationships at IBM’s largest accounts to accelerate open hybrid cloud adoption Significant opportunity to accelerate Red Hat adoption in IBM’s largest clients Indicative Distribution of annual Red Hat spend for IBM’s top 1,100 clients ~$20M/yr avg spend Top accounts are enabled to win: Re
Slide 34: Expand Red Hat in ~30 select countries
Expand Red Hat in ~30 select with little or no presence countries In these ~30 countries, IBM brings: — 6,000 IBM sellers — 100,000 services delivery professionals — 27,000 Ecosystem Partners — IBM Systems presence and industry expertise ~5,200 ~$150M Annual opportunity for every 10% of clients to a
Slide 35: Scale Red Hat in all other countries and clients
Scale Red Hat in all other countries and clients Most IBM clients are not substantial adopters of Red Hat, but when they are, they spend $450K per year on average ~14,000 ~$500M Annual opportunity for every 10% of clients to adopt Red Hat To win the open hybrid cloud mandate in all 175 countries whe
Slide 36: Better Together: Summary
Better Together: Summary Red Hat Sell More Software Sell More Services Sell More Red Hat Accelerate OpenShift adoption Leverage credibility and reach Middleware anywhere Grow with top clients Preferred destination Expand geographically Expand ecosystem Unique cloud capabilities Capture new workloads
Slide 37: IBM + Red Hat: Financial Profile
IBM + Red Hat: Financial Profile James Kavanaugh Senior Vice President and Chief Financial Officer IBM
Slide 38: Red Hat accelerates IBM's revenue growth and shift to higher value
Red Hat accelerates IBM’s revenue growth and shift to higher value Value of Red Hat + IBM… …aligns with the hybrid cloud opportunity… …to enhance IBM’s financial performance Red Hat is the leading platform for hybrid cloud >$1 Trillion hybrid cloud opportunity Accelerates revenue growth 200+ basis p
Slide 39: IBM's 2020-2021 financial performance accelerates
IBM’s 2020-2021 financial performance accelerates across revenue, operating pre-tax income and free cash flow Sustained revenue growth trajectory — Cloud & Cognitive Software segment accelerating to double-digit revenue growth in 2020, enhanced by Red Hat Revenue @CC Mid Single-digit growth — Servic
Slide 40: Red Hat is the leader in open source platforms with a high value model
Red Hat is the leader in open source platforms with a high value model Open source technology leader OpenShift is the platform for hybrid cloud Strong Revenue Growth Profile $3.5 billion, +16% @ CC Strong Subscription Model ~$3 billion annuity revenue; Very high renewal rates Hybrid, multicloud plat
Slide 41: Red Hat accelerates IBM's revenue growth by 200+ basis points
Red Hat accelerates IBM’s revenue growth by 200+ basis points over 5 years Revenue contribution to IBM’s base business IBM incremental revenue fueled by shift to hybrid cloud —Software middleware anywhere —Services led journey to cloud IBM Red Hat Red Hat and IBM incremental revenue contribution ove
Slide 42: Red Hat enhances free cash flow and adds ~$1.5 billion through 2021
Red Hat enhances strong free cash flow and adds ~$1.5 billion through 2021 Free cash flow accretive in first twelve months, with nominal dilution in 2H’19 Red Hat increases IBM free cash flow realization Free cash flow contribution to IBM’s base business 2020/2021 ~$1B ~$0.5B 2019 2020 2021 Note: Re
Slide 43: Red Hat accretive to operating EPS by end of Year 2
Red Hat accretive to operating by end of Year 2 EPS >100% dilution driven by non-cash items Impact on total IBM operating (Non-GAAP) EPS – – – Deferred revenue adjustment Share buyback suspension Stock option amortization (equity) Contributes to IBM growth in 2020 tive 2019 2020 2021 >100% non-cash
Slide 44: Non-cash purchase accounting deferred revenue adjustment
US for GAAP non-cash purchase accounting deferred $2.8B revenue ($2.2B) 80% adjustment to be replenished contracts renew $0.6B As of closing US GAAP Standard valuation methodology Post closing 44 Pay-in-advance High margin businessRemaining revenue runoutVery high renewal rates subscription based bu
Slide 45: IBM + Red Hat: updated 2019 operating EPS expectation
IBM + Red Hat: updated 2019 operating EPS ~$0.40 expectation ~($0.40) Red Hat standalone business adds to solid IBM base performance Reduction driven by temporary, non-cash items Immediately accretive to IBM GP margin Red Hat-related profit impact and tax rate drives a 2 point tax reduction to IBM r
Slide 46: Committed to maintaining strong balance sheet
Committed to maintaining strong balance sheet Debt & Leverage Ratio* Suspended share repurchase to focus on debt reduction Remain committed to continued dividend growth Expect to achieve targeted leverage ratios within a couple of years Enables flexibility to continue to invest in the business 2018
Slide 47: IBM's 2020-2021 financial performance accelerates
IBM’s 2020-2021 financial performance accelerates across revenue, operating pre-tax income and free cash flow Sustained revenue growth trajectory Continued margin expansion driven by shift to higher value and productivity Revenue @CC Mid Single-digit growth Operating Pre-Tax Income High Single-digit
Slide 48: Q&A
Q&A Ginni Rometty Chairman, President and CEO IBM Arvind Krishna Senior Vice President IBM Cloud & Cognitive Software James Kavanaugh Senior Vice President and Chief Financial Officer, IBM Mark Foster Senior Vice President IBM Services and Global Business Services Jim Whitehurst Senior Vice Presiden
Slide 49: Red Hat
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Slide 50: IBM Investor Briefing 2019
[LOGO]IBM Investor Briefing 2019
Slide 51: Forward-looking statements and non-GAAP information
Forward-looking statements and non-GAAP information In an effort to provide additional and useful information regarding the company’s (IBM’s) historical results and forward-looking financial information on a continuing operations basis, as determined by generally accepted accounting principles (GAAP
Slide 52: Notes
Notes Note 1 Forward-looking revenue growth rates are provided at the spot rate as of August 2, 2019. Note 7 Operating EPS is a non-GAAP measure. For additional information on this non-GAAP measure, please refer to Slide 53. Note 2 Growth rate at constant currency is a non-GAAP measure. For addition
Slide 53: Non-GAAP Supplemental Materials: Reconciliation of Operating EPS
Non-GAAP Supplemental Materials Reconciliation of Operating Earnings Per Share Earnings Per Share 2019 Full-Year Expectations GAAP Diluted EPS* $XX.XX Operating (Non-GAAP) EPS At least $12.80 Adjustments Acquisition-related Charges ($0.96) Non-Operating Retirement-Related Items ($0.45) Tax Reform En
Slide 54: Non-GAAP Supplemental Materials: Red Hat Revenue and Free Cash Flow
Non-GAAP Supplemental Materials Reconciliation of Red Hat Revenue and Free Cash Flow – Last 12 Months 12 Months ended May 2019 GAAP @ CC Revenue 14% 16% 12 Months ended May 2019 Net Cash from Operations per GAAP $1.1 Net Capital Expenditures ($0.1) Free Cash Flow $1.0 $ in billions The above reconci
Slide 55: IBM Investor Briefing 2019
[LOGO]IBM Investor Briefing 2019
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