IBM outlines ‘hybrid’ AI approach as revenues rise

IBM’s automation, data and AI, Red Hat and consulting revenues grew in Q3, while revenues from its infrastructure business were down. 

Senior vice president and CFO James Kavanaugh said during the company’s Q3 earnings call on October 25 that IBM saw annual bookings up 14% this quarter as more clients adopted IBM’s hybrid cloud approach. The tech giant’s software business saw a 6% revenue increase and remains a “solid and growing recurring revenue base,” with 7% growth year-on-year and $6.3 billion overall for the quarter.

Kavanaugh pointed to the launch of IBM’s watsonx enterprise-ready AI and data platform, and the closing of the Apptio acquisition as strong indicators for the business line. IBM announced in June that it was buying Apptio, a financial and operational IT management and optimization software provider, for $4.6 billion. Chairman and CEO Arvind Krishna said the acquisition will complement IBM’s current IT automation capabilities.

Watsonx, which became generally available in July, has a studio for new foundation models, generative AI, and machine learning; a data store built on an open lakehouse architecture; and a toolkit to enable firms to build AI workflows with responsibility, transparency, and explainability.

This quarter, IBM introduced Granite, a multibillion-parameter foundational model, on watsonx.ai and will look to apply the model to language and code. The company also unveiled the watsonx code assistant, which includes an assistant for IBM’s Z mainframes to accelerate the modernization of mainframe code and apps. “It’s fueled by a 20 billion-parameter model and can, as an example, swiftly translate Cobol to Java,” Krishna said. “There are hundreds of billion of lines of code written in Cobol so the opportunity is significant.”

Krishna said IBM plans to launch watsonx.governance by the end of the year to provide tools for businesses in mitigating risk and ensuring compliance in the AI lifecycle. “This is a key consideration for clients as they go beyond early proof-of-concept into real deployments,” he said.

IBM is approaching AI similarly to cloud, Krishna said. “We believe that generative AI will be multimodal, with clients using a combination of IBM models, other companies models, their own proprietary models, and open-source models,” he said. “This hybrid approach to AI is similar to the hybrid approach to cloud.”

IBM’s consulting business saw 5% growth with overall revenue of $5 billion. Year-on-year, application operations saw an increase of 7%, business transformation grew 5% and technology consulting rose 1%. Strategic partnerships account for 40% of consulting revenue, Kavanaugh said. “Clients continue to prioritize transformation projects that enable cost savings and productivity,” he said. “In today’s complex environment, IBM’s focused hybrid cloud and AI strategy has become even more of a differentiator as clients’ interest in generative AI continues to ramp up.”

The infrastructure business line, which encompasses IBM’s mainframe, saw revenues fall 3% to $3.3 billion. Z Systems grew 9% and Kavanaugh highlighted that revenue from the z16 mainframe remains ahead of prior cycles after six quarters of availability in the market. “Clients continue to value the security, resiliency, and hybrid cloud capabilities of the Z Systems platform,” he said.