Bloomberg Host (Caroline) (2:41)

Let's talk about what's in X a little bit. Let's look More at partnerships because of course that's what was announced. A little bit more of a deeper partnership with Nvidia yesterday helps your stock. We're seeing expanded collaboration. Again, this is about faster data analys, but cheaper, more, more effective. How does that help you seal more deals?

Arvind Krishna (2:58)

Yeah, so in that one actually the work we're doing together with Nvidia was a five times speed up. So five times, not 5%, not a little amount, but five times. So there we began to leverage the Nvidia GPUs together with some other CUDF or software, combining it with our Watson X data. And the example we used was our client Nestle, where together we managed to get that speed up across a massive amounts of data. And that really is important in that case combining some of the technologies we work on, also an open source with the presto presto data engine, Nvidia and the example at Nestle. But then we are very excited. We're going to do more work on that and then take it into the market and take it out to hundreds of clients from there.

Bloomberg Host (Caroline) (3:47)

You're offering these tools. You're also helping companies like Nestle just embed AI, make sure they're using in the most effective manner possible. When your consultants go in, how much does an essay want to use your offerings, but those of anthropic of open AI, of others, how much do you see that as a competitive force or a competitive threat?

Arvind Krishna (4:05)

Look, our goal has always been that we want to help our clients integrate the best capabilities from where they come. And the word integration comes in here because to some extent we are model agnostic. We believe that our clients are going to use the frontier models from all three or four of the main providers. They're going to use open source models and they're also going to use models from us, though we tend to make much smaller models, but helping them really get value. And I really believe 2026 is the year when enterprises are going to be focused and obsessive on ROI or what they're doing on AI. And so if you take Nestle, how do you take cost out of procurement? How do you take costs out of hr, the finance function, procurement, all of these things. And that's where our consultants and our technologies come together to help them do that, using both technologies from IBM, but also in the case of Nestle, from many other of the partners and the software vendors that they use.

Bloomberg Host (Caroline) (5:00)

So do you think the investor base, and just more broadly your customers as well, see that AI isn't a double edged sword for you but actually that competitive threat that sunk the shares so much on February 23rd was a misunderstanding of what anthropic could do with Cobol.

Arvind Krishna (5:16)

I'm going to be much more straightforward. I believe that the investors and parts of the media misunderstood what that blog said and did. I actually am convinced is the tailwind for us. It's not a mixed half headwind, half tailwind. It is a tailwind for us in terms of how our technology will get adopted in terms of what we do with our clients. And by the way, we had put out tools to convert and modernize COBOL two and a half years ago. So there was no new news in that blog. But they certainly can get a lot of attention.

Bloomberg Host (Caroline) (5:48)

You talk though, what also gets attention is being able to become more productive, take costs out of the business using AI. A lot of people see that as the costs of people. We're seeing block remove 40% of their employee base. You hear about headline after headline. Is that what's going to happen to the labor force?

Arvind Krishna (6:05)

So I'll take ourselves. We've been very public that we have taken four and a half billion dollars out of the enterprise with a mixture of AI and automation. That's a hard number. Now over 3 billion of that got reinvested into the business in more R and D, in more sales, in more marketing, in more delivery, in more what we would call client engineering where clients love the fact that our engineers can work with them to help them solve problems. So there is a reshaping of the workforce, but there isn't a net decrease. And but to put our money where our mouth is, we will do two to three times as much entry level meaning college hires this year as we did last year. Wow.

Bloomberg Host (Caroline) (6:47)

So you're still seeing that demand for that level of technical prowess coming straight out of university of and but I mean you have said in the past, look, you see job displacement, your term and phrase of 5 to 10%. Is that done now at IBM do you think?

Arvind Krishna (7:02)

I think that we are probably halfway down that total journey and I still stick to my total numbers in that range. And I think we are halfway through that journey but our total employment has remained roughly stable. So to the point that I make about there will be more opportunities but you've got to be willing to upskill yourself and retrain yourself.

Bloomberg Host (Caroline) (7:22)

What's not stable is the geopolitical environment often. How is that affecting you? How is that affecting the consulting part of the business in particular?

Arvind Krishna (7:30)

Look, let's acknowledge there's a lot of and disruption that's going on in the Middle east right now. I think we should feel a lot of sympathy for our people. We have thousands of employees in that region. The vast majority, I think are reasonably stable and are getting their work done. There are about 20% of the people in the Middle east who are, who are disrupted, who are not able to get to their clients, who are not able to get the work done. I think within a quarter is going to be very, very minor because most of this work is much more long cycle than short cycle, as in days or weeks. If this goes on for many more months, then I do think that we will take a slight headwind. But in the end of the day, our consulting business in the Middle east is only a few single digit percentages of our total business. So it won't impact IBM stop line and bottom line, but it is going to be impactful to some of our people and some of our clients who are in the region.

Bloomberg Host (Caroline) (8:28)

Thanks for that nuance of, and I'm interested just on the nuance of total sales growth in consulting. Will that come back to growth, do you think, in the near term?

Arvind Krishna (8:38)

I think when I was talking in January and also in October, I felt that the second half of this year will be a lot better on consulting growth than right now. We kind of said that we could see an inflection coming where the first half of last year was negative, the second half of the year turned kind of flattish. I think that we'll see continued improvement in that inflection to maybe slight growth in the first part of the year. But true growth I think is still out in the second half of the year.

Bloomberg Host (Caroline) (9:09)

True growth. True excitement about Quantum always seems to be in the second half of the decade or the millennium. But you really are putting your money where your mouth is when it comes to quantum computing becoming, you know, really tangibly useful by the end of the decade. You want to have a fault tolerant Quantum supercomputer by 2029. How on track are we there? How on track are we to integrating Quantum within the data center?

Arvind Krishna (9:31)

So in all three of your questions, Caroline, I think we are completely on track with what we had said. We said that we are going to have better qubits, better quantum processors, and our processor at the end of last year is now being used whether it's for medical work at Cleveland Clinic, whether it's for bond pricing at hsbc. Those are real use cases that are coming out. We expect to see error correction between this year and next year demonstrated and out there. So that'll be another big plus. We are investing very heavily in how we bring together normal computers and quantum computers. We put out a roadmap for quantum centric supercomputing that has gotten a lot of attention. Our partnerships with academia, with institutions. I'm so excited by what we're doing in Illinois, but also at rpi with MIT and in other places we have done some work with the national labs. This is all tells us how tangible it is and you can feel it. People are now realizing this is not science fiction, this is not engineering to get through the next two to three years.

Bloomberg Host (Caroline) (10:40)

I think I can feel your energy today. Congratulations on the completion the confluent deal and we are staying tuned from any more M and A. Come back on when it happens. IBM, CEO of and Krishnas Great speaking with you.

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