International Business Machines Corporation Q4 FY2025 earnings call

• Arvind Krishna reflected on strong 2025 performance with 6% revenue growth and $14.7B free cash flow, executing on software-led hybrid cloud and AI platform strategy.
• In Q4, total revenue grew 9%, software grew 11%, consulting grew 1%, infrastructure grew 17%.
• Cumulative Gen AI book of business over $12.5B, with software over $2B and consulting over $10.5B.
• Progress in quantum computing, deployed 120-qubit system, on track to deliver fault-tolerant quantum computer by 2029.
• Productivity savings exited 2025 at $4.5B, accelerating initiatives for innovation and acquisitions like Confluent.

Software grew 9% in 2025, representing approximately 45% of the business, with three of four sub-segments delivering double-digit growth. In Q4, software growth accelerated to 11%, with data growing 19% and automation 14%. Consulting grew 1% in Q4. Infrastructure grew 17% in Q4, driven by Z17. For full year, software grew 9%, infrastructure 10%, consulting inflected back to growth in H2.

• Expect to sustain constant currency revenue growth of 5%+ in 2026, free cash flow up about $1B year over year.
• Software expected to grow 10% in 2026, driven by organic growth, GenAI traction, M&A synergies.
• Consulting revenue expected to accelerate to low to mid-single digits in 2026, supported by backlog and GenAI momentum.
• Infrastructure revenue expected to be down low single digits in 2026, balanced by Z growth and product cycle dynamics.
• Anticipate absorbing about $600M dilution from Confluent in 2026, expect Confluent to be accretive to adjusted EBITDA in first full year and free cash flow in year two post close.

Q: Brent Thill asked about software growth acceleration.

A: Arvind Krishna and Jim Kavanaugh discussed software sub-segments like automation, data, mainframe, Red Hat, with confidence in double-digit growth in 2026 due to organic growth, GenAI, M&A synergies.

Q: Amit Daryanani asked about free cash flow.

A: Jim Kavanaugh explained strong free cash flow in 2025 driven by revenue growth and operating leverage, confident in $15.7B free cash flow in 2026 with focus on durable performance.

Q: Ben Reitzes asked about Red Hat.

A: Jim Kavanaugh discussed software growth including Red Hat, diversification of portfolio, and underpinnings of double-digit growth.

Q: Wamsi Mohan asked about server refresh and PTI.

A: Arvind Krishna addressed server memory pricing and demand, Jim Kavanaugh talked about PTI cadence and productivity initiatives.

Q: Jim Schneider asked about consulting business trajectory.

A: Jim Kavanaugh discussed consulting growth, backlog realization, GenAI momentum, and portfolio repositioning for growth.

Q: Eric Woodring asked about enterprise transformation for GenAI.

A: Arvind Krishna discussed the and world of GenAI usage, with 50% of enterprise AI usage likely in private/cloud in next 3-5 years.

Q: Matt Swanson asked about enterprise GenAI transformation.

A: Arvind Krishna elaborated on the future of enterprise GenAI usage, including sovereignty, privacy, and the balance between private/cloud models