Generative AI's powers extend to helping the ancient concept of a proprietary enterprise OS and hardware stack to thrive, if IBM's Q2 2024 results are any guide.
Big Blue on Wednesday announced [PDF] quarterly revenue of $15.8 billion – a two percent jump that would have been four points if not for exchange rate shifts.
Software revenue rose eight percent, and infrastructure revenue lifted by three points.
IBM's Z business, which is all things mainframe, rose eight percent – two points ahead of Big Blue's hybrid infrastructure biz.
That's remarkable for a couple of reasons, one of which is that Z series revenue is very cyclical: it peaks when a new box debuts and then tails off a year or two later. Revenue from the last Z series release has been higher than expected ever since its April 2022 debut.
CEO Arvind Krishna pointed out that the Z platform includes real-time AI inferencing capabilities, and that IBM has created a product called watsonx Code Assistant for Z that can do things like convert COBOL to Java and help to automate refactoring mainframe code. Techies skilled in mainframe lore are in short supply, so perhaps the Assistant makes it easier to keep a Z box around a while longer.
IBM's distributed infrastructure category, which covers POWER servers and storage, also grew, by five percent. Krishna observed that demand for SAP-on-POWER drove the growth. Storage sales were helped by the strength of the mainframe business, and by generative AI applications.
Krishna told the call that the cost of hyperscale clouds is also helping.
He described a conversation with a client that runs "a couple of billion transactions through their internal systems each day."
"If they had to go service those out to a large public cloud, the bill per day would have come back to be a couple of hundred million," he said. The same workload on-prem will be far cheaper – and far more attractive for those running AI workloads. Which is why IBM has opened its Granite AI models – so developers can customize them to do just the jobs they need, and shrink them. That may shrink cloud bills, or with Red Hat and on-prem tech shrink bills further still.
You might want to consider IBM's hardware results in the context of the lawsuit that alleges IBM bundles mainframe revenue with other products to produce nicer overall numbers. Another consideration is that IBM warned it's sinking big bucks into R&D to build things like quantum computers, and that's knocking its balance sheet around a bit.
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CFO Jim Kavanaugh told investors that IBM's Red Hat business is "still growing nicely" with annual bookings growth rising 20 percent, and OpenShift annual bookings growing at double that rate.
Consulting revenue grew by two percent, which is less than IBM wants. Krishna attributed that to "factors such as interest rates and inflation impacted timing of decision making and discretionary spend" – issues that have been present all year.
Krishna predicted consulting growth will come as the economy improves, and overall growth will be helped by mergers and acquisitions – which is just IBM's conventional practice rather than an immediate objective.
Investors weren't offered guidance, but were warned currency fluctuations will dent growth by one or two percent. They didn't mind that: IBM shares popped from around $184 to over $189 apiece in after-hours trading, because Big Blue's revenue exceeded expectations and so did net income, which jumped from $1.58 billion to $1.83 billion. ®