Software acceleration and transaction processing
Q: Amit Daryanani from Evercore asked if customer spending priorities shifted from infrastructure to software, whether transaction processing was recovering deferred demand, and if high Red Hat bookings indicated software acceleration going into 2027.
A: Chairman and CEO Arvind Krishna stated that AI application modernization acts as a tailwind for Red Hat OpenShift and Confluent, while CFO Jim Kavanaugh noted that software growth of 9% was organically driven, with transaction processing up double digits supported by ELAs.
Q: Wamsi Mohan from Bank of America asked for more details on transaction processing performance, the share of software upside from slip deals, and if through-cycle transaction processing performance remains mid-single digit.
A: CFO Jim Kavanaugh explained that about one-fourth of software acceleration came from closed slip deals while three-fourths came from net new business, and Chairman and CEO Arvind Krishna noted that transaction processing results reflected timing rather than destruction of demand.
Long-term software targets and M&A
Q: Benjamin Reitzes from Melius Research asked if management remains confident in reaching long-term double-digit software growth and how M&A will contribute.
A: CFO Jim Kavanaugh stated they have high confidence in their strategy, pointing to a $25 billion ARR book, accelerating Red Hat growth, new innovation such as Lightwell, and growth synergies from Confluent in 2027.
Data revenue and gross margins
Q: Raimo Lenschow from Barclays asked about the drivers behind 20% data revenue growth with Confluent and what drove gross margin performance.
A: Chairman and CEO Arvind Krishna stated that Confluent and upcoming lake house capabilities unlock real-time data for AI, and CFO Jim Kavanaugh highlighted that gross productivity initiatives delivered 500 basis points of productivity.
Enterprise AI ROI and deployment
Q: Brent Thill from Jefferies asked if customers experienced a reality gap relative to initial AI claims and if IBM is seeing demand to help bridge that gap.
A: Chairman and CEO Arvind Krishna agreed that enterprises are demanding true ROI and workflow redesign, which acts as a tailwind for OpenShift, Confluent, and mainframe platforms.
Q: Fatima Boolani from Citi asked for a breakdown of transaction processing quantity, shift mix growth, slip deals, and pricing uplift.
A: CFO Jim Kavanaugh explained that the monetization model leverages installed and shipped MIPS capacity, noting z17 shipped MIPS are up over 100% and installed MIPS are up high teens.
Sovereign AI and token cost
Q: Brian Essex from JPMorgan asked how focused customers are on sovereign AI and the protection of data and IP when deploying AI transformations.
A: Chairman and CEO Arvind Krishna stated that sovereign AI conversations are increasing significantly as enterprises seek open weight models and on-premise infrastructure to prevent data and log exposure.
Q: Matthew Swanson from RBC Capital Markets asked how customers balance AI costs and control when architecturing their networks.
A: Chairman and CEO Arvind Krishna answered that enterprises are turning to open models on local infrastructure to achieve 90% of frontier performance at 10% of the token cost.
