55 slides from International Business Machines's investor presentation, Aug 2, 2019
Slide 1: IBM Investor Briefing 2019
IBM Investor Briefing 2019
Slide 2: Introduction
Introduction Patricia Murphy Vice President, Investor Relations IBM
Slide 3: Agenda
Agenda IBM + Red Hat: Strategic Overview Friday, August 2 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 4: Forward-looking statements and non-GAAP information
Forward-looking statements and non-GAAP information Certain comments made in this presentation may be characterized as forward In an effort to provide additional and useful information regarding the looking under the Private Securities Litigation Reform Act of 1995. Forward- company’s (IBM’s) histor
Slide 5: IBM + Red Hat: Strategic Overview
IBM + Red Hat: Strategic Overview Ginni Rometty Chairman, President and CEO IBM
Slide 6: Slide 6
Slide 7: 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 8: Better Together: Red Hat
Better Together: Red Hat Jim Whitehurst Senior Vice President, IBM and CEO, Red Hat
Slide 9: Value of a platform in open source
Value of a platform in open source Open source projects are Successful product becomes the winner takes all reference standard (e.g. Linux) GSIs ISVs Common skills to build Fewer stacks to support Large market of usage More addressable market Red Hat Enterprise Linux® Access more workloads Access mo
Slide 10: From servers to hybrid cloud
From servers to hybrid cloud LINUX CONTAINERS & KUBERNETES Red Hat Enterprise Linux = OpenShift = default choice for the operating system (OS) default choice for hybrid cloud Red Hat Enterprise Linux Red Hat Openshift Container Platform Physical Physical Virtual Physical Virtual Private clouds Publi
Slide 11: IBM acceleration of our hybrid, multicloud platform creates opportunity across the ecosystem
IBM acceleration of our hybrid, multicloud platform creates opportunity across the ecosystem SIs/VARs ISVs On-premise Public Developers infrastructure Clouds New transformation and Ability to address new and New and migrated Additional workloads, Write once, application development migrating workloa
Slide 12: Have an early lead, IBM can propel Red Hat
Have an early lead, IBM can propel Red Hat We have early hybrid cloud IBM brings massive momentum platform leadership around workloads IBM’s commercial organizations drive trial, adoption, marquee customers across its installed base MODERNIZE APPS MULTICLOUD IBM software on OpenShift drives platform
Slide 13: Better Together: Sell More Software
Better Together: Sell More Software Arvind Krishna Senior Vice President IBM Cloud & Cognitive Software
Slide 14: IBM is the leading provider in a $1.2 trillion hybrid cloud opportunity
IBM is the leading provider in a $1.2 trillion hybrid cloud opportunity 92% 58% $1,200 of enterprises have of enterprises have $1,000 hybrid environments* multicloud environments* $550B Services for Cloud $800 10% 50% of enterprises with of enterprises will have hybrid environments are moved to ‘wri
Slide 15: 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 $1,000 Making IBM software cloud native – for private and public clouds $550B Services for Cloud $800 Preferred destination for mission-critical workloads Red Hat OpenShift o
Slide 16: 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 Google AWS OpenShift Azure OpenShift OpenShift Public Cloud OpenShift optimized Cloud Limited Limited feature feature ↻ support support Extensive multicloud governance / mgmt
Slide 17: 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 Make data ready for Eliminate 33% Reduce manual Reduce IT op expense up to 84%1 AI in hours vs. days of integration cost2 processes up to 80%3 by up to 75%4 Certifying more than 100 software products
Slide 18: A deeper look: Cloud Pak for Data
A deeper look: Cloud Pak for Data Watson Applications and Solutions Full data and AI lifecycle platform for hybrid workloads Watson Watson Watson Watson Knowledge Catalog Studio Machine Learning OpenScale Allows clients to: Db2 Hybrid Data Management InfoSphere Data Ops & Governance Virtualize their
Slide 19: The 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 Cloud Paks clients. Our public cloud manages over 16,000 production Kubern
Slide 20: IBM's 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 Robotic Process 5G/Telco IoT Location-based Augmented Blockchain Wearables Learning Automation Services Analytics Cloud Paks On-premises Private Cloud IBM Public Cloud AWS Microsoft Azure Google Cloud Edge 20
Slide 21: Sell More Software: Summary
Sell More Software: Summary Making IBM software Red Hat OpenShift on IBM will drive more IBM’s hybrid cloud cloud native – for all IBM Cloud is the best Red Hat software strategy positions private and public end-to-end stack for through strategic us to capture new clouds mission-critical solutioning
Slide 22: Better Together: Sell More Services
Better Together: Sell More Services Mark Foster Senior Vice President IBM Services and Global Business Services
Slide 23: In Chapter 2, there is significant demand for business and technology services
In Chapter 2, there is significant demand for business and technology services Building new business models Transforming from the inside-out Building new and Applying AI migrating existing at scale applications Modernizing infrastructure; moving mission-critical applications Hybrid cloud Transformin
Slide 24: Red Hat reinforces and accelerates our ability to capture the hybrid cloud services opportunity
Red Hat reinforces and accelerates our ability to capture the hybrid cloud services opportunity $1,200 How IBM drives more services revenue: Credibility and reach $1,000 IBM Services has unique scale, breadth, incumbency and relevance $550B Services for Cloud $800 Unique Cloud capabilities Different
Slide 25: 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 GBS Cognitive Process Transformation Missio
Slide 26: 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 C
Slide 27: IBM Services incumbency will fuel Red Hat and OpenShift as the default hybrid cloud platform
IBM Services incumbency will fuel Red Hat and OpenShift as the default hybrid cloud platform, creating more entry points for IBM Services New applications Accelerate the adoption of OpenShift Migrate mission-critical workloads to OpenShift Build new workloads and applications on OpenShift Establish
Slide 28: Business transformation journey and services opportunity enabled by the cloud journey
Business transformation journey and services opportunity enabled by the cloud journey Intelligent workflows AI/Machine Robotic Process 5G/Telco IoT Location-based Augmented Blockchain Wearables Learning Automation Services Analytics Cloud Paks On-premises Private Cloud IBM Public Cloud AWS Microsoft
Slide 29: Sell More Services: Summary
Sell More Services: Summary IBM Services + IBM Services has Differentiated Incumbency will Red Hat = Trusted unique scale, breadth, methods, assets and accelerate the Cloud Journey Partner incumbency and capabilities create adoption of OpenShift for the Enterprise relevance differentiation to creati
Slide 30: Better Together: Sell More Red Hat
Better Together: Sell More Red Hat Martin Schroeter Senior Vice President IBM Global Markets
Slide 31: Our Go-to-Market Priorities
Our Go-to-Market Priorities Preserve Maintain Mobilize IBM Operating Ecosystem and Invest Independence Neutrality for Scale Red Hat drives its own Red Hat operates a All IBM client-facing teams go-to-market strategy separate partner program and ecosystem partners are through independent sales and co
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 to accelerate open hybrid cloud adoption
Leverage relationships at IBM’s largest accounts to accelerate open hybrid cloud adoption Significant opportunity to accelerate Indicative Distribution of annual Red Hat spend Red Hat adoption in IBM’s largest clients for IBM’s top 1,100 clients ~$20M/yr avg spend Top accounts are enabled to win: ~$
Slide 34: Expand Red Hat in ~30 select countries with little or no presence
Expand Red Hat in ~30 select countries with little or no presence In these ~30 countries, IBM brings: ~5,200 — 6,000 IBM sellers — 100,000 services delivery professionals ~$150M Annual opportunity for — 27,000 Ecosystem Partners every 10% of clients — IBM Systems presence and industry expertise 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 ~14,000 of Red Hat, but when they are, they spend $450K per year on average ~$500M Annual opportunity for every 10% of clients To win the open hybrid cloud mandate in to adopt Red Hat 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 Middleware anywhere Leverage credibility Grow with top clients adoption and reach 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 …aligns with the hybrid …to enhance IBM’s Red Hat + IBM… cloud opportunity… financial performance Red Hat is the leading platform >$1 Trillion hybrid cloud opportunity Accelerates revenue growth for hybrid cloud 200+ basis p
Slide 39: IBM's 2020-2021 financial performance accelerates across revenue, operating pre-tax income and free cash flow
IBM’s 2020-2021 financial performance accelerates across revenue, operating pre-tax income and free cash flow Sustained revenue growth trajectory IBM 2020 – 2021 — Cloud & Cognitive Software segment accelerating to double-digit revenue growth in 2020, enhanced by Red Hat Revenue @CC Mid Single-digit
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 Red Hat is high-growth, high-value… OpenShift is the platform for hybrid cloud Strong Revenue Strong Growth Profile Subscription Model $3.5 billion, ~$3 billion annuity revenue; Hybrid, multicloud pl
Slide 41: Red Hat accelerates IBM's revenue growth by 200+ basis points over 5 years
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 IBM — Software middleware anywhere Red Hat — Services led journey to cloud Red Hat and IBM incremental revenue contribution o
Slide 42: Red Hat enhances strong 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 contribution to IBM’s base business Free cash flow accretive in first twelve 2020/2021 months, with nominal dilution in 2H’19 ~$1B Red Hat increases IBM free cash flow realization ~$0.5B IBM continues to expect
Slide 43: Red Hat accretive to operating EPS by end of Year 2
Red Hat accretive to operating EPS by end of Year 2 Impact on total IBM operating (Non-GAAP) EPS >100% dilution driven by non-cash items – Deferred revenue adjustment – Share buyback suspension Operating EPS – Stock option amortization (equity) accretive by end of Year 2 Dilutive Less Contributes to
Slide 44: US GAAP non-cash purchase accounting for deferred revenue
US GAAP non-cash purchase accounting for deferred revenue ~$2.8B ~($2.2B) 80% adjustment Non-cash purchase accounting Revenue expected adjustment to to be replenished record deferred in future as Red Hat deferred revenue at revenue balance contracts renew fair value ~$0.6B Deferred revenue @ fair va
Slide 45: IBM + Red Hat: updated 2019 operating EPS expectation
IBM + Red Hat: updated 2019 operating EPS expectation ~$0.40 ~($0.40) Red Hat standalone business adds At least ~$0.10 ~($0.85) $13.90 to solid IBM base performance Reduction driven by temporary, non-cash items ~($0.25) Immediately accretive to IBM GP margin ~($0.10) At least $12.80 Red Hat-related
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 Mid to high single A range Expect to achieve targeted leverage ratios within a couple of years Enables flexibility to continue to i
Slide 47: IBM's 2020-2021 financial performance accelerates across revenue, operating pre-tax income and free cash flow
IBM’s 2020-2021 financial performance accelerates across revenue, operating pre-tax income and free cash flow IBM Sustained revenue growth 2020 – 2021 trajectory Revenue @CC Mid Single-digit growth Continued margin expansion driven by shift to higher value and productivity Operating Pre-Tax Income H
Slide 48: Q&A
Q&A Ginni Rometty Arvind Krishna Chairman, President and CEO Senior Vice President IBM IBM Cloud & Cognitive Software James Kavanaugh Mark Foster Senior Vice President and Senior Vice President Chief Financial Officer, IBM IBM Services and Global Business Services Jim Whitehurst Martin Schroeter Sen
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Slide 50: IBM Investor Briefing 2019
IBM Investor Briefing 2019
Slide 51: Forward-looking statements and non-GAAP information
Forward-looking statements and non-GAAP information Certain comments made in this presentation may be characterized as forward In an effort to provide additional and useful information regarding the looking under the Private Securities Litigation Reform Act of 1995. Forward- company’s (IBM’s) histor
Slide 52: Notes
Notes Note 1 Note 7 Forward-looking revenue growth rates are provided at the spot rate as of August 2, 2019. 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
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
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
IBM Investor Briefing 2019