00:00I want to revisit what's going on with shares of IBM right now because they're actually a little
00:04bit higher after hours. They came out after pre-announcing those results last week on ROG.
00:10They came out today cutting their full year sales outlook, which was broadly expected. But when you
00:16take a look at this share reaction and what we learned today relative to what we heard last week,
00:22what do you make of it? Why do you think shares are higher right now?
00:26So if you look at it, you know, the revenue came in in the second quarter about 1% or
00:30so. And
00:30what they're saying is for the full year, they are looking at 4% to 5%. So, you know,
00:34you could expect some improvement. And one of the things we talked about even last time when they
00:39reported was some of the funding changes is because of people buying more hardware and servers at the
00:46expense of some of IBM software. And one of that software units is the transaction processing
00:52segment, which was down 9%. Now, you buy this software in conjunction with the IBM mainframe
00:57that you bought, you know, a few quarters ago. So what is most likely going to what we're going to
01:02hear on the call is that customers who have delayed those purchases will come back and buy it either in
01:07the third quarter or the fourth quarter. And I think that could be one reason why the stock is
01:11bouncing a little bit off.
01:13There were two areas of concern. Obviously, the idea that some of these big customers were
01:18actually delaying or putting off their orders. But there's also this idea that some of the
01:22existing customers are basically trying to find using their own AI tool and technology tools to
01:27find ways to replicate or if not completely displace their need for IBM, their need for ServiceNow,
01:34their need for Salesforce, etc. Is that a little bit overblown, Anurag, at least in terms of your
01:41own analysis and what you're hearing?
01:43Yeah, well, at least for this quarter is massively overblown because that's really not the case of
01:47the reason why they are missing. The shifting in funding is or the IT funding is what's happening.
01:53Now, if they are able to replace IBM or other software packages three years from now, it's a
01:58completely different story. But that's not what's happening right now. We are merely seeing companies
02:03buying AI-related products, not AI-related products, but let's say servers and storage devices which are
02:09going to go up in prices because of higher memory costs down the road at the expense of consulting
02:14and traditional software.
02:16And another detail from this IBM report that is interesting is that the company is saying it will
02:21accelerate cost-saving initiatives. It continues to expect an additional $1 billion in free cash flow
02:27this year. That had been one of the points that was raised since last week, Anurag, that maybe IBM
02:34could be doing more when it comes to cost-cutting. The plans that they've laid out so far, do you
02:40think
02:40that they go far enough?
02:42See, that's been the case with IBM for several years. And one of the ways they do that is you
02:47right-size the organization, except especially on the consulting side where the bigger manpower is,
02:52and you move a lot of that work offshore. Because when you look at low-cost regions, companies or the
02:57clients right now are looking more for cost-cutting initiatives or cost-savings initiative. And one
03:04way to do that is to do it from low-cost countries. And IBM consulting is a very big, you
03:08know, you
03:09could say segment within the entire consulting framework. And I think that's a little bit of
03:14what's happening over there as well.
Comments