International Business Machines Corporation (NYSE:IBM) Evercore ISI 2nd Annual Technology, Media & Telcom Conference 2022 Call September 7, 2022 2:15 PM ET
Company Participants
Tom Rosamilia – Senior Vice President, IBM Software
Conference Call Participants
Amit Daryanani – Evercore
Amit Daryanani
Good afternoon everyone. My name is Amit Daryanani. I cover the IT hardware and networking space here at Evercore. And I am delighted to have with us IBM for our next fireside chat. We have Tom Rosamilia, SVP of IBM Software business.
Tom Rosamilia
That was good.
Question-and-Answer Session
Q – Amit Daryanani
I mean I am plugging you ahead of time for Arvind in case he listens to this or you could just slack this to him in the next insight that you have at the company. But Tom, thanks a lot for being here. I have a whole bunch of questions as it relates to IBM here. But before we get there, you had quite an illustrious career. You’ve been at IBM for a bit, and you’ve been in a whole bunch of different organizations that I’m going to be talking to you when you run the hardware business, the mainframe business as well. So maybe just share with the audience a quick background on yourself, what you’ve done and what are you doing right now at IBM.
Tom Rosamilia
So I have the privilege right now – thank you, Amit, and thank you all for coming. I have the privilege right now of running the software business for IBM. I also am responsible for IBM cyber protection, so protecting us against the bad guys. And I’ve been in – as Amit says, I’ve been here forever at IBM, almost 40 years and always in hardware or software, a combination of lots of different areas, including mainframe, including power, including storage. But also back in the day, building the WebSphere franchise, running database engineering. And so it’s a good combination of things to get me at this job – ready for this job. I did also spend a year in Beijing, working there on a joint venture that I was doing in Beijing in China, so privilege of doing a lot of things. I did run strategy, corporate strategy for 1 year, which is when I met some of you the first time around. But I’m just thrilled to be here. And I’m thrilled to be at IBM. It’s a very exciting time to be here.
Amit Daryanani
Perfect. So Arvind has been as a CEO for the last 2.5 years or so, right?
Tom Rosamilia
Exactly.
Amit Daryanani
Can you just talk about, in your point of view, just the history you have had with the company? Talk about the efforts that IBM has made to transform itself since Arvind has taken over, your perspective on kind of what the strategy was, what the actions were that he has undertaken? And the main thing I would love to get from you is what are you hearing from clients as it relates to IBM, my words 2.0, not yours?
Tom Rosamilia
Yes. I don’t know if it’s 2.0 or 3.0 or 4.0, but certainly, it’s a new dot. It’s a new version. And the new version comes with a lot of change. I think my boss, Arvind, had made a lot of big decisions, a lot of big pivots for IBM. If you think about it, the largest spinout we’ve ever done with GTS, now Kyndryl, running its own managed service business. Big acquisition of Red Hat, $34 billion reasons to get that one right. And it’s working really well for us right now. It’s a huge pivot to hybrid cloud. Speaking of that pivot, we were, I’d say, 5 years ago, all about public cloud and Watson. And now the pivot’s really been to hybrid multi-cloud and AI everywhere. I see the combination of working together with – we’ve got new segmentations around IBM Consulting, IBM Software, which I have, which includes Red Hat and IBM Infrastructure. I sold off the health care business to keep us more focused on the things I think we need to do. And I think the – and the partnerships that we’ve struck up with many firms, including what you’ve seen us do with EY, what we’ve done with SAP, what we’ve done with Oracle. I just signed a strategic partnership with AWS. So the boss is very focused on partnering in the ecosystem of partners to help us win in the hybrid multi-cloud and AI everywhere world. And I think all of those have been fundamental pivots for us in an IBM company.
Amit Daryanani
Yes. It’s fascinating. We were talking about this…
Tom Rosamilia
I am sorry, you asked about clients. So a good client example, I was recently in France. And one of the things that I really noticed was we had a group of IBMers from IBM Consulting from my team and the client. And you really could not tell the difference in who was who in the room. In fact, the client noted that it was hard to tell the difference between the IBM team and his own team. We featured them on a billboard at IBM Think in Paris. And the client insisted that the IBMers be included in, let’s create billboard to say we created this together. I want IBMers on the billboard as well. So they ended up with 4 people on the billboard, 3 from the client, 1 from IBM, one big happy family, really hard to tell the difference. And it was enlightening to hear that from the client. Sorry, go ahead.
Amit Daryanani
No, no, no. I was just going to observe on this and you and I were talking about this earlier, which is 5, 6 years ago, it used to be that public cloud assets like the AWS and Azure of the world, I remember talking about as a big risk to the IBM narrative. And it’s less appreciated even by me as I tell this to you. But you’ve become a partner to these things and a runway to these public multi-cloud journeys, if you may. So that, I think, has been a pretty big change in strategy that IBM has had under Arvind and you.
Tom Rosamilia
It’s a huge pivot. And as I said, I signed a strategic partnership with AWS. That doesn’t mean I’d only deal with them. We work a lot with Microsoft as well. And obviously, we support the IBM public cloud for the heavily regulated industries where it’s really appropriate. But it was important for me to make my software available, not just bring your own license, which has been true for a long time or many years now but also available as a service on AWS. And AWS is obviously the leading cloud infrastructure company out there. I love the partnership. It started with IBM Consulting. They have over 10,000 certified professionals in the IBM consulting side. Now we’re working with them on the software side. There will be 19 properties available, 19 software properties available as a service on AWS, more and more every quarter. I love the fact that they’ve dedicated about 100 people within AWS to me to help me make my software available as a service on AWS.
We are in their catalog. Customers get to use their commit spend – get to use the spend on IBM software as part of their commitment to AWS. And they’re paying their sellers commission to sell IBM software in the marketplace on AWS. So that combination gives me a real ability to sell into new places and new spaces. We’re not putting everything there. I’m not sure everything would be appropriate as a service. But for the appropriate properties to make them available on AWS and eventually Azure, some are today. But starting with AWS, I think it’s a great pivot for us away from, as you said, it’s going to be all IBM or nothing.
Amit Daryanani
Right. And so maybe dig into the software business a little bit that I think you are about. It is the largest business for IBM. I think it accounts for 40% of sales. And I think you have talked about – IBM has talked about targeting mid single-digit growth for this business, 30% pre-tax income margins, PTI margins. Maybe just, a, give us an overview on what are some of the priorities of the business? And then second, just talk about what are the big buckets that IBM is focused on here?
Tom Rosamilia
So this pivot to hybrid cloud is really enabled by Red Hat OpenShift and our move and embracing Red Hat OpenShift and allowing me to rebase all of our – what you might think of as legacy middleware on Red Hat OpenShift. And so things like cloud packs available and across my whole portfolio, these cloud packs on OpenShift running on RHEL and they run everywhere. So the nice thing in the hybrid multi-cloud environment is by having the software available in this container native, cloud-native environment, we can run it everywhere. It’s made the mainframe a full citizen in a hybrid multi-cloud environment. And this allows me to run my software everywhere. So the software parses out into things like Red Hat, obviously, a big part of that and that – the intention here is to grow that. Our commitment is to grow that at high-teens. So we did 17 in the second quarter, kind of in line with what we’ve said. We have also got our transaction processing business on the other end, which is our really high-value software that mostly runs on the mainframe and is critical to delivering what we’re used to seeing every day. And that software continues to be essential to our clients and to all of us in the world.
The other parts of this have really morphed from our legacy software into these cloud packs. And they’re in different areas. So data and AI is made up of things like our data fabric, which has just been recently recognized by Forrester in one of their ways to say, leading data fabric. And what this allows you to do is get at the data where it lives, whether it’s on-prem, on the mainframe, on-prem, on Intel-based servers, in somebody’s public cloud, including IBM or AWS or Azure and have a view of that data that’s a federated view instead of having to move all that data into one place. So fabric is a big part of the story. Customer assistance is a big part of the data story to say, can I do things like Watson Assistant and automate calls for people that like CVS takes advantage of this. If you call up for a vaccine appointment, they can handle 80% of that call without a human ever being involved. And that’s what helped companies like CVS to get through the peak of load that they would have had to hire hundreds or tens of thousands of people to handle that kind of a call load.
We are doing that now with McDonald’s and doing – we teamed up with McDonald’s, took some of their technology, some of our technology and making automated drive-throughs. So quick-serve restaurants to do automated order taking. So the data space is a very rich space for us. Automation is another space and whether it’s AI ops or what would be called IT operations, automating the process of IT around something called Watson AIOps plus some acquisitions that we did around Instana and Turbo are our key areas. Security is another space. And security is – I mean you’ve seen the data. The cost of a data breach has reached $4.35 million per breach right now. So it’s a ripe area for us to help clients. And we’ve done some organic investment and some – and I’ve done some acquisitions in this space. So the combination of the 2 gives us a really powerful security story.
And the last one is around sustainability. And a lot of us are focused on sustainability. Many of you are focused on sustainability. I did an acquisition of a company in Australia called Envizi, which gives us an environmental dashboard to get at multiple points of data coming in to feed clients so that they can look at their carbon footprint and how it’s changing on a daily or hourly basis to say, I’ve got buildings that are running too hot. I’ve got supply chain concerns. I’ve got weather data. I’ve got asset data that’s telling me some motors running inefficiently right now. And that’s contributing to overload. I should replace those assets before they fail. So this dashboarding capability, which we were a customer of and decided we wanted to buy it. So it gave us a great view into the carbon footprint of our company and, therefore, others. It’s allowed us to be a leader in sustainability. Many companies have set goals. Good thing. Now we need to help them track and manage to their goals for the future. And the sustainability software gives us a way to do that.
Amit Daryanani
Perfect. You mentioned M&A a few times. You were talking about the different products you are focused on. And I feel like one of the key topics investors will spend a lot of time about with us is just trying to understand IBM’s M&A strategy, right? And to your discussion, you have been fairly active on the M&A side. Can you just talk about how are you leveraging M&A specifically on the software side to bolster your overall offerings? And then what do you really look for in M&A targets when it comes to the huge asset base that you have out there?
Tom Rosamilia
Well, we are always shopping. We are always looking, whether they are big or small, but we’re always – I always want it to be something that’s a close relative. I want it to be a close cousin or a brother or sister or something we’re already doing. If it’s too far afield, I’m not going to get the benefit of the synergy from our sales force. And so I want to be able to say, you know how to sell A. Now you can sell A and B or you know how to sell A, B and C. I just bought D and E. So it’s got to be a related area. So it’s in the areas of data. We just bought a company called Databand for data observability, so people can really understand how clean their data is, how accurate it is. I don’t want to discover 3 days later that I haven’t been updating the data. And that’s a big problem for people.
I mentioned acquisitions like Instana and Turbo that give people the ability to automate their IT operations. So those fit nicely into our automation portfolio. They’re not brand-new areas that I have to figure out. They’re places where I can add assets to what I’ve already got organically. I look at the acquisitions we’ve done in security. I’ve done two in something called ReaQta, which helps me with EDR, XDR, if you’re familiar with the endpoint detection and our ability to respond quickly; and Randori, which I’m very excited about in the security space, which does attack surface management. So it comes at you like a hacker would think, and it actually finds your vulnerabilities and it says, okay, you need to remediate these. These are your high priority vulnerabilities. Here’s the next list. And so then we can go to a client and say, here’s your list of vulnerabilities. You have to do something about that. You can’t just ignore that. And so that’s a great product in the security area. We have done 13 acquisitions in the software space since 2020, none as big as Red Hat. But a lot of places – I won’t even call them tuck-ins because I think they’re giving us brand permission to expand what we do in security and automation and data and AI and sustainability and have much more of a good current dialogue, good discussion with a client about what issues they’re facing today. I should say, we have also done a number of acquisitions on the consulting side, and we traditionally had not done that. And we’ve done a lot more around DevOps, around sales force, around Microsoft, around SAP. And my colleagues over in the consulting have added dramatically to their list of skills. So what you’re really doing there is buying – is acquiring skills and skills that clients need today and skills that are in our strategic areas of investment.
Amit Daryanani
Got it. So do you expect to be more active on the M&A front as you go forward given what’s happening to valuations in the public markets? And maybe that’s partly transitioning to early-stage companies as well. But do you expect to be more active?
Tom Rosamilia
I think it depends. I mean at the right price, absolutely. And are things more attractively priced now? I hope so. It really depends on what their Boards think, what their investors think, what their founders think. So is the anomaly a year ago or is the anomaly today? Was I artificially higher? Today, am I artificially low? So I think it will take some period of time. I’d be interested in your point of view as how long does it take before founders, Boards, investors say, this is the new norm. And that’s what the company is worth today versus what – if I look back 6 months or 12 months ago and say, well, that was what it was worth then. So I think that realization is happening. So we are seeing that start to filter through. And I hope it happens in obviously in public Boards, public companies, you see that reflected every day. You have a speedometer on that every day. In private, it may take them a little bit longer to realize what’s going on. So they’re probably a little bit behind the public markets and understanding valuations. But we’re shopping.
Amit Daryanani
I always imagine it takes a few months for people to realize that this is not a blip, but it’s a new reality.
Tom Rosamilia
Which is the blip? A year ago or now, right, I think it was a year ago, but we’ll see.
Amit Daryanani
So you are saying my house is not worth the money Redfin tells me it’s worth right now? We will double-click on Red Hat, right? I mean this has been – it’s been one of the better acquisitions to undersell it that IBM has done. It’s been a runaway success, I think, for the company given the momentum you’ve had over there. But I guess will Red Hat continue the type of growth we have seen so far, which has been in the high-teens, maybe even 20%? And then importantly, I’d love to understand, how are you leveraging Red Hat in other parts of your software portfolio?
Tom Rosamilia
I think actually we’re leveraging it all across the portfolio, but we’re also helping Red Hat. And Red Hat has been a great asset for us, but I think IBM has brought a lot to Red Hat as well. Initially, you think about the sales scale, which was Red Hat needed worldwide sales team. And they were either going to have to hire it or they were going to have to be bought by somebody who can deliver this capability worldwide, whether it’s RHEL, Red Hat Enterprise Linux, where they’re a market leader, or OpenShift, which is their Kubernetes managed environment, which is a leader in a market that’s growing. So the first place we’ve helped them a lot is in sales. The second place is in software. And what we’ve done is build these cloud packs, which is taking legacy existing really important middleware and moving it into container managed environments running on cloud packs running – I’m sorry, running on OpenShift so that we can rebase all of our middleware, make it more current running in containers on OpenShift. The third area is research. We’ve got a tremendous partnership between research and Red Hat to help them augment their technology. And the fourth is consulting. We have the leading consulting firm that uses Red Hat software that implements Red Hat software in the world.
Now Red Hat actually won’t tell us who’s in second place because they keep independence, but we know we are number one. And the IBM – my colleagues in IBM Consulting intend to stay there. It’s helped us a great deal because we are, like many, looking to modernize our software. And so we’ve modernized all of our software portfolios based on containers, made them cloud native. And I couldn’t have done that if Red Hat had remained independent on the chance they could have been bought by somebody less favorable to me. So in order to rebase all of my software and make it modern and make it container native, I needed to have Red Hat in some level of control. But we’ve maintained that distance. We love their support on AWS. I should mention that we run on OpenShift on AWS, something called ROSA, which is Red Hat OpenShift on AWS. And so I take advantage of the OpenShift capabilities on AWS. So I can take advantage of AWS without being locked into AWS. So I can move it eventually to Arrow, which is the equivalent on Azure, and run it on anybody’s cloud that supports OpenShift. So I have a level of insulation, if you will, that allows me to move my software on-prem multiple clouds, because of what OpenShift and Red Hat provides to me, so great partnership with Red Hat and OpenShift.
Amit Daryanani
And then I think of the growth rates at Red Hat, did they sustain where they are? Did they slow down, accelerate, maybe?
Tom Rosamilia
Well, we have said they will do high-teens and 17 was their second quarter. So I don’t know, we are too far into the third quarter for me to speculate on that. But that’s what I expect them to be able to do based on the strength of their assets and based on the strength of the IBM backing that they have, but still also based on the independence that they maintain to be able to sell to some people who might think of themselves as competitors to IBM but they know that it’s in good hands and its remaining arm’s length. By the way, I can favor Red Hat, but I don’t want Red Hat to favor me. So that’s the way that works.
Amit Daryanani
Got it. Maybe we will shift to automation for a bit. This is an important growth area for you. You have talked about this upfront a bit. I think last quarter, you saw 8% growth here, and you talked about things like AIOps that were doing really well. Maybe you just talk about some of the secular trends you’re seeing here in this – in the market for automation and maybe provide some examples of the value-add solutions like cloud packs are providing for clients?
Tom Rosamilia
So I’m sure you get this when you talk to your clients is issues in the world right now around skills and around cost of labor. And so what people are looking at is how can I use automation in order to guard against that. And so skills have been a problem for 2, 3 years, we’ve been talking about skills. The more automation I can provide, the more automation I can do of mundane tasks, the better off I’ll be because I can focus my skills on more important things. And so I see automation as a big play for the industry. And of course, I plan to take advantage of that. But it’s around things like RPA and the things that we can do with robotic process automation. So not an IBM buzzword, but an industry buzzword to say can I take things like HR tasks and automate them so that I can put through a promotion or put through a raise or put through a organization change without having to hand tend it through all the different systems? And on our side, we’re using that to interface with our Workday implementation. And it allows managers to get a lot more productive and to use RPA in order to do that. It’s things like BPM, which is a little bit more advanced in that you have lots of human interaction with that, not just kicking off a process. It’s also around things like network automation. We’ve been working with DISH as they roll out 5G to do network automation. And it’s also around AI operation, which is being able to run that system in things like observability and the ability to manage resource.
So Instana we bought is container native observability. And what it allows you to do is say, how is my system running? Where is it doing well? Where is it not? Turbo is actually the next level of that, which says go load balance my system for me. Everybody’s got too much of something and too little of something else. I’ve got too much network, not enough CPU. too much storage, not enough of something else. So you’re overpaying for something and you’re underprovisioning for something else. So this gives you the balance and it corrects itself if you let it. So it says you need more storage. Let’s get more storage so you can optimize the level of peak performance you’re getting. You can maximize your customers’ experience. By the way, I’ll save your money along the way. So the nice thing about doing application resource management, not just observability, is we can actually affect change. We’re also looking at things we could do with sustainability that says, hey, go deploy that workload to a data center that’s using wind-fired electricity versus one that’s using coal-fired electricity so you could lower your carbon footprint by the data center you choose to run it in. We’ve also partnered with companies like Flexera to do license management that says, you can’t deploy it there because you don’t have the licenses to run there or don’t over deploy your systems or here you can because you have enough licenses to get that deployment. So there is a lot of different use cases around automation that I’m very excited about.
A good example of that is TD Ameritrade. We worked with them on Cloud Pack for business automation, and they were able to automate, save 400 hours of work, improve their processes by 70%. They did it across 13 different processes. They love it. We love it. And so the ability to take these mundane tasks and automate them, whether it’s business process or IT process or network management, I think, is a big area for us. It’s a $90 billion business with a 14% CAGR. So that gets my attention, too.
Amit Daryanani
That’s a big TAM with a very fast growth rate, so I understand what gets your attention. I guess maybe from a strategic perspective, right? I mean when I think about things you’ve done in hybrid cloud and AI, you sort of modernize these offerings post Red Hat. Now you’re providing really a lot of your software portfolio in AWS as well. Can you just talk about your rationale behind the strategy, whether this expands your overall TAM or not? And then what has the customer feedback been as you’re expanding it to AWS and beyond?
Tom Rosamilia
Well, I think a lot of people were surprised by the announcement that we made around AWS and I think pleasantly so because people have been asking for it. And now we’re willing to do it and do it big with a strategic partnership announcement. It’s a combination. There is – we have a lot of really terrific customers who maybe only buy some part of our portfolio. I’d love to sell them security or I’d love to sell them security consulting or I’d love to sell them IBM Consulting. So wallet share is definitely a part of this discussion. And I mean they don’t spend enough of their wallet share with me today. So I can leverage my installed base, where I have a relationship, where I’ve sold them a product or a service or consulting and say, let’s expand this relationship to go to other parts of my portfolio.
At the same time, it is about new logos. And we want new logos. And I think by acquiring companies like Randori, which is an easy thing for anybody midsized customer to do or ReaQta or Envizi or some – Databand, I mean these are things that any customer could do or potential customer could do. So, new logos is an important part of that. I think a lot of what we’ve done with AWS is around new logos, not just existing customer spend. And the more I can make available as a service on the public cloud I think the better off albeit acquiring the new logos, not just selling more to the existing base.
Amit Daryanani
We will move away from I guess some of the Red Hat and automations that we’ve talked about. You also have a really broad-based security product, security services offering right now on the software and services side. Maybe just touch on what is the overall strategy for security when it comes to IBM. And then what are the areas that you think IBM really differentiates itself versus other vendors because there are a lot of vendors on the security side?
Tom Rosamilia
It’s a very busy space, and I take advantage of that as well. I have several thousand people doing security services and they’ll implement whatever you choose. So if you need to implement CrowdStrike, we will help you do that. There are many products out there. As you say, it’s a busy space. So we’re happy to help you do that with my software or with other people’s software. It is also a space, as I said, the cost of a breach is high. So everybody is very motivated. It’s a Board-level topic of discussion that everybody is focused on. I think it comes down to things like EDR, XDR, taking care of your endpoints so that if a breach does occur, you can shut it off and not allow that breach to pervade your network.
I think it’s around Zero Trust, which is an industry term. For me, it’s around Guardium protecting your data to make sure your data doesn’t fall into the wrong hands. It’s around attack surface management, which is this Randori acquisition that we did that can show you the – a picture of your vulnerabilities and help you remedy them. And all this rolls up into cloud pack for security. So we have a cloud pack for data, cloud pack for integration, cloud pack for business automation, cloud pack for security. So the cloud pack for security gives you all that capability. And then you can choose which parts of it you wish to implement. So it’s a broad portfolio. I will never have all of the capabilities that the industry has. But I think we have a really good set to help people have a fairly comprehensive view of their security and what they should do about it. And where we don’t have it, we will help you implement it with somebody else in the security business.
Amit Daryanani
So there is been a fair bit of talk, fear discussions around the macroeconomic slowdown and what does that mean for different parts of the world, different parts of the geographies, if you may, right? One of the hallmarks I’ve always thought about IBM historically and hopefully as we go in the future as well is IBM is actually navigating these macroeconomic slowdowns a lot better than most companies do. And so maybe just talk about how are you positioned from a macro downturn perspective. And then what are you hearing from your customers when it comes to these worries?
Tom Rosamilia
So you guys look at the macro as much as I do. And I read the paper every day like you probably do. And we will see. I mean it’s clearly going to be a period of some level of inflation. And how long or how far, it depends. I think it’s going to be different. I think those of us in the U.S., I’m heading over to Asia next week. I think I spent time in Europe. It’s actually a lot higher inflation over there in the UK. Things are greater than 10%. But from a macro perspective, I think we will see challenges. And I think everybody is going to be looking to manage costs in this environment, including me. But the good news is I can help customers manage costs and manage expense. The more automation I can do, the more I can help them manage their environments.
IBM Consulting faces the same thing. So we’re all facing the labor challenge of the cost of labor. And by the way, I’m facing the FX challenge all the time as well because I don’t think the dollar – I don’t remember it ever being this strong. So very strong against the yen, against the pound, against the euro, against all the world’s currency. So we have that challenge as well as most U.S.-based companies do that price the way we do. But I’m helping people through that challenge. I’m helping people manage their costs and manage their expense and increasing their productivity. So to the extent that I can give them a value proposition that can help them to manage that environment, I think it gives us great strength and great hope. I don’t know how long it will last. I think my boss, I don’t know any more than he does about this. And I would say we’re hoping that it’s not huge, but it will be with us for a while. And I think he’s probably right on that point.
Amit Daryanani
That’s fair. Maybe talk about – in the past, I was always talking about, hey, x percent of our revenues are reoccurring in nature. And that’s really what gives you a lot more visibility even through macro downturn. So what percent of your software business, you think, is more reoccurring in nature versus these transactions will be the opposite of that?
Tom Rosamilia
So the good news is 80% of our revenue is recurring revenue. So that certainly helps protect us against the transactional ebbs and flows. And in a hybrid cloud, we did $13 billion of ARR, up 8% in the second quarter, so annualized at $13 billion. I think that says it’s a robust business. Certainly, we will look at where we can – where we need to have labor-based businesses. And I certainly pay a lot of people money to develop software. We pay people in consulting as well. So we’re not immune to that. But I think we have great value propositions for our customers in order to provide value for them. And I need to price competitively. But we will always look at where we can change price where possible to reflect the world’s reality on inflation and the world’s reality on FX.
Amit Daryanani
Got it. I guess while we’re on the topic of macro, you’ve talked about inflation, you talked about FX and how it’s playing out on the software side very clearly, right? How are you responding to that, to your customers with – because you’re dealing with a lot of these price pressures. So how are you responding to your customers?
Tom Rosamilia
I think we’re – we have to make to the compelling value proposition of how doing something with us is going to help them take cost out. And it’s going to help them save money. It’s going to help them automate. It’s going to help them automate – one of the interesting stories in one of the quick-serve restaurants we’re working with is that we were doing a pilot with one. And then we stopped doing the pilot. We had to move on to others. And the restaurant manager said, you just fired the one employee shows up every day. So the automation was there to help every day. I don’t have to hire anybody who’s willing to work. I can implement software that will help me get this job done. Not the best job in the world working at a drive-through. And so it really is helping customers like the quick-serve restaurants to do that level of automation. So I think always been true. Now more than ever, it’s got to be a compelling value prop of how I’m going to make your business better with technology, transformation and innovation and how I’m going to help you take cost and expense out.
Amit Daryanani
Is pricing part of the equation for you where you’re having these headwinds? So are you actively raising prices for software solutions to your customers as well?
Tom Rosamilia
We usually do. I think it will be a little bit more this year based on the macro environment and the fact that inflation is at 8% in the U.S., 10% in the UK. So I think as my boss has said, customers don’t love it but they understand it.
Amit Daryanani
Fair enough. We have a few minutes left over here. So maybe I’ll ask you the last one here. As you reflect in the progress of all the products we’ve actually talked about on the software side and even broadly for IBM, what are you the most excited about as you think about the future, the next 5 years at IBM?
Tom Rosamilia
Well, I’ll start with just what I’ll call the plus factor, which is when I see what we’re able to do between like software and consulting as an example. We’ve never had as strong a partnership as we have right now between IBM Software and IBM Consulting. I mentioned the customer in France. That was a great example of seeing the combination of forces, whether it’s around implementing automation or doing analytics or whatever they might – or implementing AIOps or doing sustainability software or working on 5G implementations have all been in combination with IBM Consulting, not exclusively IBM Consulting but great partnership with IBM Consulting.
When I look at bringing in things like the McDonald’s tech to do voice recognition, great alliance with what we’re doing in research around what’s called NLU or natural language understanding. So the combination of research plus the acquisition of in this case McDonald’s tech. When I look at the combination of things around environmental, like Envizi plus what we had with Sterling and what we have with Maximo and what we have with TRIRIGA. So building management, asset management, supply chain management, weather, all coming together. So, the combination of the inorganic and the organic development that we are able to do. The combination of AIOps around what we had done, research-based, my team based with AIOps plus Instana plus Turbo gives us a great combination of technologies to bring together. So I think it’s about the plus, not one or the other but about both. People ask me – I’ve gotten a lot of questions here about acquisitions. It’s about both. It’s about what I can do organically and how I can blend that together with the inorganic pieces of our business.
If it’s 5 years – we were just having a good discussion about Quantum. I see us in a leadership position in Quantum. I’m very excited by the possibilities there in hardware and software and the combination of quantum plus traditional and Quantum – we’re not talking a lot about Quantum today, but Quantum is not going to replace traditional computers. You’re not going to do ATM transactions on a Quantum computer. But you’ll do things that we cannot do today or are impractical to do today or get modeled today as best we can, like risk management and like the science that goes behind genomics, the things we can’t do today that we will be able to do with Quantum, not just advantage over better, but being able to do things we can’t do today. I look at the world through the level of optimization and say, if I’ve got ships off of Long Beach and I got to figure out which containers – which goods are on which containers on which ships and what order they have to come in, in order to minimize waste and maximize expedite charges. So what order do I bring those ships in? And what order do I offload those containers? And how do I make sure the trucks are in the right place? All these optimizations are possible today with part of my portfolio, but I think will be enhanced by things like quantum computing. So as I said, I’m almost 40 years in, but I’ve never been more excited. This is a great time to be at IBM. I see it all about transformation, all about technology. We’ve got a technologist at the helm, and it’s great to see. And actually, our Head of Sales is a technologist. I grew up in technology. So you’ll see a lot of us in technology. And I think we’re very proud of it.
End of Q&A
Amit Daryanani
Perfect.
Tom Rosamilia
Thank you, Amit.
Amit Daryanani
Thank you very much. Really appreciate your time, Tom. Thank you.
Tom Rosamilia
Thank you.
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