About James Kavanaugh
In a January 2019 CNBC interview, IBM CFO Jim Kavanaugh discussed the company's cloud business and the pending acquisition of Red Hat. He stated that IBM's cloud business generated $19.2 billion for the full year, up 12 percent, and that cloud revenue accelerated across all segments from the third to the fourth quarter. Kavanaugh attributed some of the quarterly cloud performance to a product cycle dynamic involving IBM's mainframe business, which grew 71 percent in the fourth quarter of 2017 and continued to accelerate through 2018. He said that without the mainframe, cloud was up 19 percent overall.
Kavanaugh described the Red Hat acquisition as a move to "accelerate the leadership position in hybrid cloud." He noted that IBM had invested in its cloud architecture, data centers, and new offerings such as IBM Cloud Private and cloud migration services. He characterized the industry as moving into a second phase of cloud computing, which he said would involve "shifting workloads, mission-critical workloads on real business value," and estimated that "80-plus percent of the workloads are still ahead of us." Kavanaugh also remarked that Linux had surpassed Microsoft in operating systems both on-premises and in the cloud, and said that with the combination of IBM and Red Hat, "we own the starting point and we now own the destination point." He stated that the acquisition was working through regulatory approval and was expected to close in the second half of 2019.
Source: AI-verified profile updated from James Kavanaugh's recent appearances.
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Transcript (4 segments)
I
Interviewer0:10
It looks like revenue came in a little later than expected. Why was that?
J
James Kavanaugh0:18
If you take a look at our cloud business, let's look at that. Our cloud business on a full year is $19.2 billion, that's up double digits, 12% to be exact. Now when you look at our cloud in the quarter, our cloud actually accelerated when you take into account the product cycle of our very successful, in fact most successful, mainframe cycle that we've had in quite some time. We came off of a mainframe cycle in fourth quarter 2017, we grew 71%, and that mainframe cycle has continued to accelerate throughout 2018. We expected product mix to overcome the second half of 2018, but when you look at our cloud, to your question, our cloud accelerated across all of our segments from third quarter to fourth quarter, and without mainframe was up 19% overall, and we see that continuing as we move into 2019.
I
Interviewer1:31
Jim, I wanted to ask about the Red Hat acquisition, $35 billion back in October it was announced. What was the main driver for that? Was it changing market conditions? Was the acquisition done from a position of strength or a position of weakness? What was the main thought process and how's the integration going?
J
James Kavanaugh1:51
Okay, yeah, we're very excited about the acquisition of IBM and Red Hat coming together. We have consistently over 50% market share, but we are at a point in time right now where we've built out our IBM cloud architecture, we've built out our data centers around the world, invested significantly in capital expenditures. We came out with a whole new set of offerings around IBM Cloud Private, around cloud migration services, cloud application services. And we think right now the position IBM is in, and more importantly the position our clients are in and what they're telling us about moving through the first phase of cloud, which really was dominated based on pure public and economics, now the second phase of cloud is going to be really about hybrid. And why is it so important? With the power of IBM and Red Hat, one, we've been investing to continue to transform our business, and two, when you look at Red Hat, for the first time ever Linux has surpassed Microsoft in operating systems both on the on-prem side and in the cloud. So we believe with the combination of both of us, we own the starting point and we now own the destination point. And we are very excited and we're working through the regulatory approval process, and we expect that to close in the second half of 2019.
