IBM CEO Arvind Krishna on revenue miss, consulting business and HashiCorp acquisition

IBM CEO Arvind Krishna here at Milken. Nice to see you. Always good to be here, Sarah. Everyone’s trying to figure out on the big picture what’s happening with the economy, the, the weakness that you reported in the consulting business, Is that a discretionary slowdown? How do you characterize it? I think, Sarah that as we look at the macro economy, I only see one headwind and that is the higher for longer interest rates as people begin to digest that. And now the belief is that it’s going to take much longer for rates to come down that causes a slight headwind or uncertainty in corporate spending. If one believes that it’s just interest rates and nothing else, which I do believe it is, then people are going to try to take our discretionary spend for the next few months or quarters. I don’t think it’s long, long term, but they are going to take our discretionary spend. The portion of our business which faces that is consulting by the way. It’s not that it took a 10 or 15% drop, but it did perform 3 or 4% below our own expectations and below what we thought would happen. And that is really what happened. If I look at the other parts of the business, software was strong at 6%, infrastructure was stronger than we expected and cash flow was extremely strong. So yes, consulting causes a slight revenue miss. But if I look at all the other metrics, they’re very, very healthy and keep us very confident for the year. Is consulting continuing to slow or or coming back? How do you look at the path from here for the rest of the year? I believe it’ll be better than the first quarter, but compared to where we thought it would be late in 23, it is going to be slower this year than sort of the mid to high single digits that we would have projected at the end of 2023. So it is going to come down. We kind of said we see it slowing down into the four to six range. But I also want to be clear, its impact really on the four parts of the business where we are driving hybrid cloud, artificial intelligence, big digital transformations, those are not going to be tossed, but where people have discretion in in labor based services that is going to face that couple of point headwind. It’s also your first time speaking out in an interview since the Hachi deal which was announced on the same day. How does that fit in with your overall AI strategy because that’s just what investors want to hear about South Two parts 1st. The primary reason for Hashi is it really helps us double down on our hybrid cloud strategy as our clients are looking at leveraging multiple public clouds, many of them also have on premise infrastructure. A way to really standardize across those to be able to deploy infrastructure as code is really what Hashi was founded on with the technology called Terraform. And we have a lot of hopes with half a billion downloads already. That’s a technology that really is getting embraced by the world. And in this world where maybe some of us worry about hackers and secrets and keys getting lost and then causing all kinds of hacks, as has been happening, their walled product gives a really strong way to ensure your hybrid infrastructure against cyber. Now if you think about AI, all of this goes on steroids. You have even more infrastructure. It’s even more complicated. How do you get it done in a common way? So you can deploy your models wherever they come from, wherever you want, deploy them in the most efficient way. And so the mixture of Hashi’s two technologies help make AI also get deployed in a much better way and more secure it sounds like. So you did announce that you are you booked a billion dollars so far and bookings related to AI for enterprise clients. Where do you sit in relation to a Google or a Microsoft who are spending so much more in terms of CapEx on AI at the moment? Well, if I look at the infrastructure part, so the CapEx is being spent on infrastructure. We partner, we partner with AWS, we partner with Microsoft, we partner with Dell, with HP. So we don’t need to spend that CapEx on, on buying infrastructure or hardware. Where we are spending our money is on training models and then we run them where our clients want to run them, whether it’s on premise or it’s in public clouds, we train models in all these places. So that is why we are not trying to change the infrastructure market. We want to partner with all the people doing infrastructure.