IBM Q4 better than expected, watsonx gains traction

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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IBM reported better-than-expected fourth quarter results and CEO Arvind Krishna said, "our book of business for watsonx and generative AI roughly doubled from the third to the fourth quarter."

The company reported fourth-quarter revenue of $17.4 billion, up 4% from a year ago. IBM showed revenue growth in software, consulting, and infrastructure. Big Blue delivered fourth-quarter earnings of $3.54 a share and $3.87 a share on a non-GAAP basis.

Wall Street was looking for IBM to report fourth quarter earnings of $3.80 a share on revenue of $17.28 billion. Krishna said IBM expects 2024 revenue growth in the mid-single digit range with about $12 billion in free cash flow.

Krishna's reference to watsonx's book of business highlights the trend of companies talking about future revenue. On a conference call, Krishna said:

"We are confident in achieving our midterm revenue model and the strength of our diversified business model allows us to make progress each quarter.  We enter the year intend on enhancing our software portfolio and strengthening our consulting position. We have done both. Mid last year we launched watsonx, our flagship AI and data platform. We are excited by the traction we are seeing." 

IBM buys StreamSets, webMethods from SoftwareAG for €2.13 billion | IBM Delivers AI How It Is Meant to Be With Watsonx

Krishna added:

"Last quarter I shared with you that our book of business the third quarter, specifically related to generative AI and watsonx, was in the low hundreds of millions. Since then demand continues to increase. And our book of business in the fourth quarter is roughly double that third quarter. We continue to have thousands of hands on private interactions, including an acceleration and pilots that were completed during the quarter. Software transactional revenue and SaaS ACV was approximately a third of our book of business related generative AI in the fourth quarter two-thirds was consulting signings. There was a balance of both large and small transactions across both segments." 

For 2023, IBM reported revenue of $61.9 billion, up 2%, with earnings of $8.15 a share.

By the numbers for the fourth quarter:

• Red Hat revenue was up 8% as software revenue overall was $7.5 billion, up 3.1% from a year ago.
• Consulting revenue was $5 billion, up 5.8% from a year ago.
• Infrastructure revenue was $4.6 billion, up 2.7% from a year ago. IBM zSystems revenue was up 8% in the quarter.

More:

• IBM launches latest Heron quantum processor, IBM Quantum System Two

ServiceNow delivers strong Q4, ups 2024 outlook

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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ServiceNow reported better-than-expected fourth quarter results, delivered revenue growth of 26% and said it landed more than 168 deals with annual contract value topping $1 million.

The company reported fourth-quarter net income of $295 million, or $1.43 a share, on revenue of $2.44 billion, up 26% from a year ago. Non-GAAP fourth quarter earnings were $3.11 a share.

Wall Street was expecting ServiceNow to report earnings of $2.78 a share on revenue of $2.4 billion.

For 2023, ServiceNow reported net income of $1.73 billion, or $8.42 a share, on revenue of $8.97 billion, up 24% from a year ago.

• ServiceNow CEO McDermott talks business transformation, generative AI, processes
• AWS, ServiceNow ink 5-year collaboration pact
• ServiceNow acquires UltimateSuite, adds task mining
• ServiceNow's latest Now Assist generative AI features highlight its strategy

As for the outlook, ServiceNow projected first quarter subscription revenue growth of 24% to 24.5% with non-GAAP margins of 29%. Here's the full outlook. 

Separately, ServiceNow said it inked a five-year strategic alliance with Visa. The two companies will launch ServiceNow Disputes Management, Built with Visa. The two companies aim to streamline the disputes management process for issues with AI. ServiceNow also expanded a partnership with EY to offer generative AI compliance, governance and risk management tools.

CEO Bill McDermott said generative AI is "injecting new fuel into our already high-performing engine." ServiceNow CFO Gina Mastantuono said the company saw 99% renewal rates in the fourth quarter.

On a conference call, McDermott said:

"We see AI as a 360 degree strategic imperative. I've told the ServiceNow team worldwide that the company is now moving into Phase Five, the culmination of our long term goal of surpassing $10 billion in ACV, which incidentally only a handful of software companies have ever achieved. We have so much runway ahead for the long term growth of this company. There are two key elements of our strategy, execution and scale. Execution is an art form and scale is all about capitalizing on new opportunities as a truly global platform company."

By the numbers:

• Current remaining performance obligations to be recognized as revenue over the next 12 months was $8.6 billion, up 24% from a year ago.
• The company has 1,897 customers with more than $1 million in annual contract value.
• ServiceNow spent $2.12 billion on R&D in 2024.
• 63% of ServiceNow's revenue is from North America. 

SAP retools for generative AI, cuts 8,000 jobs, sets 2024, 2025 ambition

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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SAP plans to restructure and cut 8,000 positions as it focuses on artificial intelligence and uses the technology to become more efficient. SAP said it expects to add back new roles and exit 2024 with headcount at similar levels.

The enterprise software giant ended the year with nearly 108,000 full-time employees.

In a statement, SAP said it plans to retool to focus on growth markets and business AI. SAP said its restructuring will be covered by "voluntary leave programs and internal re-skilling measures." Restructuring charges will be about €2 billion with most of that being recognized in the first half of 2024 with minimal cost benefits due to reinvestment.

• SAP adds Alam to Executive Board leading product engineering
• SAP's AI ambitions depend on migrating customers to cloud, S/4HANA
• SAP aims to infuse generative AI throughout its applications: Here's everything from SAP Sapphire 2023
• SAP buys LeanIX, aims to couple it with Signavio, system transformation
• SAP user group DSAG rips S/4HANA innovation plans, maintenance increases

On a conference call with analysts, SAP CEO Christian Klein said:

"The tech industry is moving fast. We need to keep leading the way as a top enterprise application company and further advance to become the number one Business AI company as well. This is why out of a very strong position we are now accelerating the development of the company with the clear goal to grasp the opportunities of GenAI."

"We are stepping up our investment in Business AI to drive automation as we see significant growth opportunities lying ahead and want to improve our operating leverage," said SAP CFO Dominik Asam.

As for SAP's 2024 outlook, the company said €17 billion to €17.3 billion in cloud revenue, up 24% from €13.66 billion in 2023. The company said software and cloud revenue will be €29 billion to €29.5 billion with €7.6 billion to €7.9 billion non-IFRS operating profit.

SAP also outlined its 2025 outlook including cloud revenue of more than €21.5 billion and total revenue of more than €37.5 billion. Non-IFRS operating profit by 2025 will be €10 billion.

With the restructuring plan and outlook, SAP also reported fourth quarter and fiscal 2023 results. The company is retooling to drive cloud sales and move customers to S/4HANA. Customers have had a mixed reaction and SAP's 2023 net Promoter Score is 9. According to Simplesat, the average NPS for SaaS businesses is 30 and enterprise software's average NPS is 44.

SAP said fourth quarter revenue was €8.47 billion with cloud revenue of €3.7 billion. SAP S/4HANA cloud revenue was €1.03 billion. Earnings per share were €1.01 a share. Adjusted earnings were €1.41.

For fiscal 2023, SAP reported revenue of €31.26 billion with a profit of €5.93 billion.

Klein said that SAP can differentiate with its AI platform. He said:

"We are developing strong organic product, a strong organic AI platform so that our copilot tool can speak not only finance but can solve some of the hardest problems our customers facing across the company. We are going to infuse it right into the business processes. When you look at what we already can do in particular sales and optimizing inventory, it can take out a ton of CapEx and OpEx of the P&L or balance sheet of our customers. And then when you listen to our partners like Microsoft or NVIDIA, where we just closed another partnership, I mean they are keen actually now to combine their copilot with our copilot to extend our AI platform. When you have content from over 30,000 customers and access to the most mission-critical data, the algorithms become smarter every day. We can actually solve some problems."

Other takeaways to note:

• SAP said Vodafone is betting on RISE with SAP and is using Signavio and Datasphere along with other apps. Volkswagen is an expanded customer win for SAP SuccessFactors.
• Total cloud backlog is €44 billion, up 39% from a year ago.
• SAP's top 1,000 customers are now on average using 4 SAP cloud solutions, up from 3 last year.
• SAP's Cloud ERP suite represents 82% of the company's SaaS and PaaS revenue.

Verizon sees enterprises building out private 5G networks

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Verizon said large enterprises are building out private 5G networks for connectivity and edge computing use cases.

The wireless giant disclosed the 5G private network buildout on its fourth quarter earnings call.

Verizon CEO Hans Vestberg said on the company's earnings conference call:

"We continue to see interest from large enterprises running complex logistics and operations like ports, automotive and heavy industries. In November, Norfolk International Terminal contracted us to build a second private 5G network for them. Audi, already one of our partners in smart car development, has contracted us to build a private network for their automotive tech testing environment. And Nucor, one of the country's largest steel companies, has us building private networks for three of its sites with more to come over the next year."

Vestberg added that private 5G networks are a new source of revenue for Verizon's enterprise unit. Verizon has built out 5G private networks for the NFL across stadiums.

"When we build relationships with these large enterprises and they see what our network can do for them, there is always potential for more business," said Vestberg.

What's notable about Verizon's 5G networks is that it can play into edge computing and connectivity to process more AI workloads locally.

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• Intel's AI everywhere strategy rides on AI PCs, edge, Xeon CPUs for model training, Gaudi3 in 2024
• HPE to acquire Juniper Networks for $14B: What it means

Other takeaways from Verizon's fourth quarter earnings:

• Vestberg touted a partnership with HCLTech on post-sale implementations and customer support for managed network services. He said HCLTech has enhanced "our customer service while saving Verizon money."
• Regarding HCL Vestberg said: "On the cost program, '23 was a big year for us. We did a lot in customer care. We did a lot with the managed services with outsourcing with HCL. We implemented some really large IT systems. We continue to deploy our offshore centers and being even stronger using that as a platform on the basis that we created the Verizon Global Services. I'm really pleased with the platforms, and that means we're on track for the savings we talked about going into '24."
• Total wireless postpaid phone net additions were 449,000 in the fourth quarter.
• Verizon's adjusted fourth quarter earnings were $1.08 a share, on revenue of $35.1 billion, down 0.3% from a year ago. Consolidated net loss in the fourth quarter was $2.6 billion.
• Verizon's business revenue was $7.6 billion, down 3.6% from a year ago. Verizon Business had 292,000 wireless retail postpaid net additions in the fourth quarter.
• Verizon is projecting wireless revenue growth of 2% to 3.5% in 2024.

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Oracle launches OCI Generative AI service, plans to embed throughout databases, applications

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Oracle said its generative AI managed service on Oracle Cloud Infrastructure (OCI) is generally available and the enterprise software giant said it plans to infuse it throughout its database and application offerings.

The company said its OCI Generative AI service will integrate large language models (LLMs) from Cohere and Meta Llama 2 for multiple business cases. Those two options fall short of the number of models offered by other hyperscalers, which have taken a mall approach to models, but the way Oracle is deploying the generative AI service may appeal to enterprises.

In a blog post, Greg Pavlik, SVP OCI, said:

"We took a holistic approach to generative AI as we thought through the complete picture of what enterprises truly need to successfully implement generative AI. We’re also increasingly adapting models to real-world enterprise scenarios."

More:

• Here's why generative AI disillusionment is brewing
• Why vendors are talking RPOs, pipelines, pilots instead of generative AI revenue
• How much generative AI model choice is too much?
• Generative AI features starting to launch, next comes potential sticker shock
• Get ready for a parade of domain specific LLMs

OCI generative AI service can be used in Oracle Cloud or on-premises via an OCI Dedicated Region. That twist may appeal to regulated industries that Oracle already caters to, said Constellation Research analyst Andy Thurai. He said:

"While OCI's managed LLM as a service, via API access, is a compelling option, it is currently limited to just Cohere and Meta's Llama 2. Currently, the use cases are also very limited to text generation, summarization, and semantic similarity tasks.

Oracle's option to use the generative AI service in the Oracle cloud and on-premises via OCI dedicated region is a somewhat unique proposition that might be interesting to some large enterprise customers -- especially the ones in regulated industries.

In terms of overall generative AI offerings, Oracle is far behind all three cloud providers. However, the option to integrate generative AI in Oracle's ERP, HCM, SCM, and CX applications running on OCI could make this offering more attractive, if priced right."

Doug Henschen, Constellation Research analyst, said:

"It's notable that Oracle is hosting two moderately sized foundation models that  promise lower-cost operation than the large public models. Use of Cohere models will be indemnified by Oracle while Llama 2 is an open source option that will enable customers to build custom models. Being hosted on OCI, both options keep data and model training entirely inside Oracle's cloud, avoiding cross-cloud calls to external public models."

Here are the key points of the announcement at Oracle's CloudWorld Tour:

• OCI Generative AI service supports more than 100 languages with improved GPU cluster management.
• Oracle will embed AI across its applications and converged database with pre-built services instead of a tool kit.
• Enterprises can consume the service via API calls.
• Customers can refine the OCI Generative AI service models with retrieval augmented generation (RAG) techniques. To that end, OCI Generative AI Agents is in beta and can combine with a RAG agent for customization.
• The OCI Generative AI Agents beta supports OCI OpenSearch, but Oracle said it will support search and aggregation tools to Oracle Database 23c and MySQL HeatWave with vector search tools.
• Oracle said it will deliver prebuilt agent actions across its suite of SaaS applications.

Constellation ShortList™ Artificial Intelligence and Machine Learning Cloud Platforms | Trust In The Age of AI

In addition, Oracle launched OCI Data Science AI Quick Actions, a no-code feature of the OCI Data Science service that will enable integration with multiple LLMs and open-source models.

The company said it also improved its existing AI offerings for vision, speech, document understanding and translation.

Supply chain transformation critical as resilience worries stack up

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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This post first appeared in the Constellation Insight newsletter, which features bespoke content weekly and is brought to you by Hitachi Vantara.

Confidence in the global supply chain's continuity and resilience is waning and it's a topic we're likely to hear more about as companies report fourth quarter earnings in the weeks ahead due to geopolitical and climate disruptions. Get ready for another supply chain transformation investment cycle.

The Dun & Bradstreet Global Supply Chain Continuity Index was 47.9 in the first quarter of 2024, down from 51.1 in the fourth quarter of 2023. Why? Geopolitical tensions in different parts of the world, trade disputes and climate-related issues are disrupting trade routes causing both higher delivery costs and delayed delivery times.

Enterprises are trying to re-route supplies through regions insulated from geopolitical issues. As a result, supply costs are increasing due to longer routes, higher freight charges and insurance costs.

There are two ways to look at what is emerging as the next supply chain crisis. First, higher supply chain costs will crimp profits as well as boost inflation. On the bright side, another crisis is going to accelerate the rewiring of the increasingly intelligent supply chain as technologies such as artificial intelligence are used.

My working theory is that these intelligent supply chains are a precursor to broader value chains. Supply chain software such as Manhattan Associates and Blue Yonder are working to integrate data, deliver insights and partner.

Raj Subramaniam, President and CEO of FedEx Corp., said it's imperative companies optimize supply chains. Speaking at the National Retail Federation (NRF) conference, Subramaniam said "you want to optimize your supply chain end-to-end and deliver a better, seamless ecommerce experience. Our mission is to make supply chains smarter for everyone."

FedEx had launched the fdx platform, which integrates FedEx capabilities to give merchants conversion tools, control of shipments, increased visibility, streamlined returns and data on carbon emissions impact. "Physical networks get us where we need to be, but digital supply chains make that journey faster, more precise and — equally critical — more seamless," said Subramaniam.

UPS has launched its own supply chain platform for businesses in November.

Walmart CEO Doug McMillon outlined the company's supply chain transformation at CES 2024. McMillon said Walmart built a general merchandise supply chain with a distribution center as it scaled. In the late 1990s, Walmart built a supply chain for e-commerce. Ultimately, Walmart had three different supply chains.

"For a few years now, we've been working to link them. We're building an intelligent, connected and more automated network, one that already moves more than 100 billion individual items every year. Now we can do that in a smarter fashion. I've been with this company for over 30 years and there's never been a period of transformational change like the one we've started with our supply chain," said McMillon.

Constellation Brands John Kester, senior vice president of operations services at the company, said the company has been streamlining its supply chain by making it more digital and proactive. Speaking at Constellation Brands recent investor day, Kester said "what's even more exciting is the future unlocks the digital tools can deliver beyond the base business case."

Specifically, Kester said Constellation Brands is creating planning signals throughout the supply chain. Those signals will reduce inventory, create more accurate cycle and safety stock levels and improve on-time and full shipments. Data from suppliers to warehouses to distributors to retailers will connect.

In many ways, supply chain transformation projects are insulated from macroeconomic issues. Since supply chain transformation can simultaneously save money and solve sustainability compliance requirements, there's usually a solid return on investment case to be made. Even if a long-term lens is needed for supply chain transformation projects, there are plenty of shorter-term returns available.

Here are a few takeaways on supply chain transformation from Suresh Kumar, Walmart's Chief Technology Officer and Chief Development Officer.

1. Intelligent supply chains require systems integration and scale. Kumar said Walmart's three supply chain systems worked well individually. The power was in reimagining the entire systems and reconfiguring parts.
2. A flexible data architecture. It almost goes without saying that if a company doesn't have its data game down, the supply chain transformation will suffer. Kumar noted multiple data points that drive its automated supply chain.
3. Intelligence, via artificial intelligence, machine learning, data and analytics, needs to be able to forecast what customers want and when they want it and orchestrate the movement of different products that are stored in different ways.
4. Forecasting is critical for both suppliers and customers. Suppliers need to see demand changes in near real time as well as customers. "We built an industry leading forecasting system that is smart. It's automated and it uses a patent pending machine learning model that predicts customer behavior and helps us accurately forecast how much of a product is needed and where," explained Kumar. "The system incorporates dozens of different types of data. Like historical sales data, but also things like weather forecasts, the overall popularity of an item compared with last year, but also how an item is trending on social media."
5. AI has to model and orchestrate the movement of inventory at scale. "We also built artificial intelligence into how we orchestrate the optimal movement of our inventory. The main job is to have the product where our customers needed the most," said Kumar. "The AI system also redistributes autonomously. If the demand for an item spikes in one area of the country, our automated system redistributes the merchandise within the network so that customers can get it when they want. When the customer places an order. Our AI system predicts how long it will take based on several factors including how many associates and drivers are available but the distance to the home in real time."
6. Customer experiences offline and online need to be connected. Kumar said the transformation of the supply chain is ongoing and critical to Walmart's vision of adaptive retail. "It's only going to get better with the connected supply chain," said Kumar.

From our underwriter

Supply chain disruption — from human and technology errors to weather and other crises — has always been a challenge. Manufacturers are using dashboards to visualize performance measurements, preventative maintenance and process optimization. But while they are a critical starting point, supply chain dashboards are not enough. Today’s manufacturers need a way to move from data collection through the supply chain to decision support and actionable insights. Get the full story.

Supermicro ups Q2 outlook as AI server demand heats up

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

Read more

Supermicro said its second quarter results will be stronger than expected as demand for its AI, cloud and storage rack systems surged.

The company said that its second quarter revenue will be between $3.6 billion and $3.65 billion compared to its previous guidance of $2.7 billion to $2.9 billion. Earnings will be $4.90 to $5.05 a share on a GAAP basis compared to previous guidance of $3.75 a share to $4.24 a share. Non-GAAP earnings for the second quarter will be $5.40 to $5.55 a share.

Supermicro didn't detail what was driving its better-than-expected results, but the likely reason is demand for generative AI systems. Supermicro said its liquid cooled rack systems were seeing strong demand. In addition, AMD has launched its GPUs for generative AI workloads to compete with Nvidia. All of those developments likely add up to strong AI server sales for Supermicro.

The server maker’s outlook indicates that the booming demand seen by Nvidia is not filtering down to server companies. Both Dell Technologies and HPE have signaled strong pipelines for generative AI systems.

• Why vendors are talking RPOs, pipelines, pilots instead of generative AI revenue
• How AI workloads will reshape data center demand
• The New 2023 Cloud Reality: A Rebalancing Between Private and Public

Speaking at a recent investment conference in December, CFO David Weigand said the slate of emerging technologies for AI workloads and next-generation data centers is playing into Supermicro's strengths. Weigand said:

"Super Micro's strength is the fact that we are approximately 50% engineers. We are an engineering company, and that fact is helping us now because technological development has sped up. You have multiple platforms with Nvidia, AMD and Intel, ARM solutions, as well as others. There are a lot of emerging technologies. And this is really playing into Supermicro's model, which is our building block solutions that we architected the server technology from the ground up."

Weigand added that Supermicro's in-house designed servers enable it to integrate new technologies for custom workloads. "We design something unique for a customer that not only gives them the very best cost performance metric, but it also gives the lowest total cost of ownership, because we have designed our servers to be low power consumption and to manage heat," said Weigand. "With GPUs going past 1,000 watts and dissipating a thousand watts of heat and CPUs dissipating in excess of 500 watts of heat, heat is becoming more important. Our ability to provide liquid cooled solutions and what we call green computing or the lowest amount of heat dissipation allows us to have a competitive edge."