← WSJ Tech News Briefing
WSJ Tech News Briefing
At 115 Years Old, Can IBM Survive the AI Era? CEO Arvind Krishna Makes the Case
00:11:49
Loading summary
Transcript28 lines
- [00:01]
IBM Representative
The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across hr, IT and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM.
- [00:35]
Imani Moiz
Welcome to Tech News briefing. It's Tuesday, July 28th. I'm Imani Moiz for the Wall Street Journal. Tech swag isn't just for employees anymore. We'll explain why companies are getting into the fashion business and who's actually paying $175 for an OpenAI half zip sweatshirt. Then, after the worst single day stock loss in IBM's history, earlier this month, CEO Arvind Krishna sat down with the Wall Street Journal to lay out the bull case for the company. He'll explain why he thinks investors have it wrong. But first, if you think getting your hands on the latest Jordans is hard, try getting a Palantir chore coat. Tech firms are now treating merch releases like a side hustle, selling everything from hoodies to water bottles to rice cookers. The collections have sparked ridicule across the Internet, but many products have sold out, proving that while AI is fueling backlash, it's also building a fandom. Wall Street Journal features editor Jamie waters looked into OpenAI's latest launch and joins us now to unpack why these companies are suddenly looking like lifestyle brands. So, Jamie, why are tech companies launching clothing lines?
- [01:51]
Jamie Waters
We're in a funny moment where obviously there's this big backlash against tech companies. It's not that there's never been merch for tech companies, but think these releases, they're very stylized. You know, there's a shoot with the OpenAI merch, the Palantir chore coats and tennis collection. There's like a lot of effort put into these products. It's not just slapping a logo on a T shirt. In terms of why now, I think in part it's to support and fuel the enthusiasm for these companies because they have a lot of haters, but they also have a lot of people who are obsessed with them. And also it's branding. You know, it's free marketing. So you're getting people to wear these clothes around. And, you know, I spoke to a branding expert for this story who said that ads often aren't that effective because the public is often disinterested, very skeptical. This is actually A really effective way to do it is if you make products that people want to wear or carry around.
- [02:50]
Imani Moiz
Can you describe some of the merchandise that they're selling and how much are people paying for these items?
- [02:54]
Jamie Waters
So OpenAI launched this collection recently and it's a streetwear leaning collection. So there's $100 hoodie, which has Codex on it, the coding agent. There's a half zip appropriate for any finance bro, which has research written on it. Incursive. That's $175. There's my favorite thing. There's a green basketball that says ChatGPT.
- [03:17]
Imani Moiz
And OpenAI's clothing line in particular sparked some pretty strong reactions online. How did these launches go over?
- [03:24]
Jamie Waters
Unsurprisingly, the fashion world was very critical. Some people said that this is a very dated esthetic from five or so years ago. And then there are a lot of people who are criticizing it because there's obviously so much animosity about AI and what it's doing and how it's shaping the world and what it's kind of going to do to our future. And so there are a lot of people that are like, why are you supporting a brand, a company like this? And also, why do you want to wear it around?
- [03:51]
Imani Moiz
Despite all the criticism, these merch lines are selling out. Who's actually buying this stuff? Who's the target audience here?
- [03:58]
Jamie Waters
Yes, they have mostly sold out of them. So the audience is tech enthusiasts, OpenAI enthusiasts and OpenAI employees. Those are the biggest customer bases. And then, yeah, there's a lot of really dedicated supporters of this company. I spoke to two of them. They both work in the industry. One of them compared it to when your favorite band releases New Merchants. You know, it's kind of a funny thing to think of people as being like, avid supporters of an AI company.
- [04:28]
Imani Moiz
Like. Like a tech groupie.
- [04:29]
Jamie Waters
A tech groupie, totally. And then the one guy I spoke to in Texas, he has an OpenAI tattoo and a Codex tattoo on his wrist. He's worn some of the merch from previous limited edition drops. He said, quite often, two out of five times, when he will leave the house in this, someone will come up to him and say, why are you wearing that? Don't you know what they're doing to our community? And he said he wasn't anticipating that people would be so confrontational about it. And he says to them, essentially, like, to each their own. The other thing is that he gets a lot of people who are kind of more curious about it, and they're like, where did you get that. So I guess it's a mixed bag.
- [05:09]
Imani Moiz
That was WSJ features editor Jamie Waters. A quick reminder, we want to hear from you. Have you seen an AI generated post that you thought was real? Shoot us an email to tnbsj.com or leave us a voicemail at 212-416-2236. That's 212-416-2236. Or if you're a listener on Spotify, leave us a comment. Coming up in over a century since its founding, IBM has reinvented itself countless times and its current CEO believes the company can do it again in the age of AI. That's after the break.
- [05:59]
IBM Representative
The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across hr, IT and procurement processes, we've reduced costs by millions, slashed repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM.
- [06:32]
Imani Moiz
IBM stock has been under pressure since the company lowered its growth outlook and announced disappointing earnings earlier this month. Investors are questioning if the 115-year-old company can survive the AI era. But in a recent interview with the Journal, CEO Arvind Krishna said he's not worried. While other tech giants pour billions into AI data centers and developing new models, Big Blue is trying to convince Wall street that there's more than one way to win. Our columnist Christopher Mimms sat down with Krishna to discuss the role he sees IBM playing in the AI ecosystem and the next frontier technology he believes could become a trillion dollar market.
- [07:10]
Christopher Mimms
Make the case for us that this AI boom that has investors so spooked in the medium to long run could actually be a boon for IBM. Like what is your synthesis on that?
- [07:23]
Arvind Krishna
I think AI is an incredible technology that is going to provide an incredible amount of productivity in a number of human endeavors, health, education, how companies run, how governments operate. I actually believe all of that is going to go happen. Now there are two ways that can happen. It can all fall into the hands of one or two providers and that is what some of that boom you're talking about is being spent on. I actually believe is going to be the exact opposite. I believe that the vast majority, 70%, is going to be in a massive heterogeneous mix, a number of open weight models, a number of models from other countries. We have yet to talk about the physical world Coming into this, where you need knowledge that is embedded deeply in the model and as well as models at the edge. So that is my view of what's going to transpire. This is going to take a couple of years to play out, not decades.
- [08:24]
Christopher Mimms
And IBM's piece of that, the way that could be a boon for you is you're a deliverer of that democratized technology. Right?
- [08:33]
Arvind Krishna
We are a deliverer. And if I go beyond maybe the top 10 or 20 non tech companies, they're not going to have the in house skills to talk about what I'll call kernel engineering and model routing. So we can help them by giving all of that while being neutral or agnostic on, okay, which of these hundred different capabilities do you want to use and how do you do it in a way that's safe?
- [08:59]
Christopher Mimms
So let's take a step back and talk about some fundamentals because I think one of the challenges that a lot of analysts and journalists have with IBM is they don't actually, as far as I can tell, understand what your revenue mix is and how you make money quarter to quarter while everyone is building this AI future. It's 2026. I think people don't appreciate that the core of your business is still this thing called the mainframe. And people don't even know what a mainframe is. Right. It's a very peculiar beast, but it's in everything. Like if mainframes went away tomorrow, like that would be like an asteroid like extinction level event for global economies because you would take out like what, 8 out of 10 of the biggest insurers, most of the world's banks, all of the airline booking systems, most of the world's insurance companies. Right. They're all running core processes on your mainframes and you have 90% market share.
- [09:53]
Arvind Krishna
Now mainframe is not the majority of our business, but it's an important part of our business. Mainframe hardware is a quarter of the hardware revenue.
- [10:00]
Christopher Mimms
Got it.
- [10:01]
Arvind Krishna
And hardware is just 20% of our total business. But if I extrapolate it a little bit broader, Chris, from just the mainframe, a lot of the hardware and software we provide runs in what I would call mission critical parts of the enterprise. Not so much on the edge, not so much in where they are sort of experimenting around the edges. But it's doing billing, it's helping people store their data, it's helping people unlock data for other purposes in real time. When you look at that, that aggregate probably reaches 80% and that is still going to carry on. You still need to run the enterprise, even as you're doing all this. And then people say, wait, don't you have software that is going to be replaced by an agent? We have very little software. Yeah, that could get disrupted. I acknowledge that.
- [10:48]
Christopher Mimms
Right. And so you've also said in the past, I think your CFO reiterated this on your most recent call. For every dollar that somebody spends on IBM hardware, that's like two or $3 that is going to occur in terms of recurring software revenue. Right. So that makes hardware a keystone of what you're doing.
- [11:07]
Arvind Krishna
Every dollar that they spend on mainframe, not all hardware is three to four dollars that we get across. The other parts of IBM, some of it is in software that they buy from us to run on it. Let's maybe call that two. Some of it is from maintenance, probably another 30, 40 cents in terms of giving them help to be able to go operate all of these infrastructures. So there is a multiplier effect, effectively, by the way, no different than a SaaS company. They sell you a capability, but then they're getting the money for running the hardware and backing it up and keeping it secure.
- [11:42]
Christopher Mimms
You and I have talked about Quantum before and you just announced that you acquired something called HRL Laboratories. Why are you excited about this acquisition? Why did you make this acquisition?
- [11:53]
Arvind Krishna
For a few reasons. One, people with really deep quantum skills are pretty rare. Two, they're bringing some strength around quantum materials because of the approach they take, which is complementary and additive to what we have. Time will tell which of these technologies is the ultimate scaling answer, but I have actually upped my estimate. I think Quantum will be a trillion dollar value adder by the end of the 30s. I'm really comfortable in that roadmap.
- [12:25]
Imani Moiz
That was WSJ columnist Christopher Mimms. And that's it for Tech News Briefing. If you're a listener on Spotify, be sure to leave us a comment. Today's show was produced by Pierre Biennime with supervising producer Katie Ferguson. I'm Imani Moiz for the Wall Street Journal. We'll be back later this morning with your TNB Tech Minute. Thanks for listening.
- [12:50]
IBM Representative
So there's a lot of noise about AI, but time's too tight for more promises, so let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business. IBM.