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Let s Create 2024 Annual Report

Dear IBM Investor: In 2024, IBM made significant progress in becoming a higher growth, higher margin business. We made this progress by combining technology innovation and consulting expertise to drive growth, improve productivity, and enhance operational efficiency -for our clients, and our own company. Arvind Krishna Chairman, President and Chief Executive Officer Our strategy continues to build upon the two technological foundations of AI and hybrid cloud, which clients need to unlock the full value of their data. We have made a series of investments to accelerate the delivery of that value to our clients, from transforming the way we work to reorienting our portfolio around powerful, AI-based solutions. As this report demonstrates, these investments are paying off, delivering meaningful returns for our shareholders, clients, and partners. Today, IBM is a software-led, fully integrated platform company, built to grow sustainably. This is the ROI of IBM. 2024 Performance For the year, IBM generated $62.8 billion in revenue, up 3% at constant currency, and $12.7 billion in free cash flow an increase of $1.5 billion year-over-year. Our generative AI book of business now stands at more than $5 billion since inception. This revenue growth and cash generation enabled us to make significant investments in the business and deliver value to our shareholders. In 2024, we allocated more than $7 billion to research and development, closed 11 acquisitions to enhance our capabilities, and returned more than $6 billion IBM 2024 Annual Report 1
Software Consulting to shareholders through dividends. IBM expanded operating gross profit margin by 130 basis points in 2024, driven by a focus on high-value offerings and productivity initiatives. Software revenue grew 9% at constant currency, reflecting strong demand for our advanced capabilities in hybrid cloud, data and AI, automation, transaction processing, and security. Red Hat performed well as clients embraced its open hybrid cloud platform. Consulting revenue increased 1% at constant currency, demonstrating our clients continued need for expertise in AI deployment, digital transformation, and cloud modernization, despite a dynamic market environment. Infrastructure revenue declined 3% at constant currency, in line with product cycle expectations. IBM z16 is now the most successful mainframe program in our history, highlighting its enduring value to clients. Technology innovation and consulting expertise IBM s mission to help businesses leverage technology to scale and grow profitably is more critical than ever. Technology is now the key to sustainable growth and business transformation. At the core of these transformations is artificial intelligence. Our clients have moved beyond experimentation and are now looking to scale AI in their businesses and generate return from their investments. To achieve that return, they need access to effective, affordable, and efficient enterprise AI. 2 Infrastructure IBM has established an early leadership position in this regard, building a portfolio of enterprise AI offerings focused on generating ROI through productivity improvements and automation. IBM watsonx provides a robust portfolio of AI products for developing AI apps, managing data, and governing the entire lifecycle of AI models. AI assistants manage key tasks, including customer service and writing code. We are developing pre-built AI agents that deliver multitask reasoning for specific business domains. And our Granite family of fit-for-purpose AI models, when tuned with proprietary data, can deliver enterprise-grade generative AI with up to 90% improved cost efficiency. Granite allows clients to bring their own data into the models, and can be trained on that data in weeks, not months. Deploying AI at scale across an enterprise requires seamless access to the data that feeds it. In this way, hybrid cloud is an essential ingredient for maximizing the return of AI investments. That is why 75% of AI deployments are expected to use containers by 2027, and demand for our hybrid cloud solutions remains strong. Already, more than 90% of Fortune 500 companies are using IBM s hybrid cloud products and solutions. And last year, we launched two new offerings to give clients a consistent, open-source foundation for AI: Red Hat Enterprise Linux AI and OpenShift AI. Together, our AI and hybrid cloud platforms bring together the data, models, governance and monitoring capabilities needed to automate workflows and drive productivity. And they create a flywheel of growth for IBM, with each offering pulling through demand for the others.
A driving force behind this flywheel of growth is IBM Consulting, which fuels approximately 80% of our AI bookings. IBM is the only technology company with a consulting business at scale, which is a unique differentiator, especially when it comes to helping clients deploy AI. Our 160,000 consultants apply their data, AI and hybrid cloud expertise to guide business transformation for our clients. In 2024, we augmented that expertise with a new platform called IBM Consulting Advantage. By equipping our consultants with role and domain-specific AI assistants, agents, and applications, IBM Consulting Advantage enables deeper insights, faster time-to-value, and improved efficiency compared to traditional consultancy approaches. Supporting this work is a powerful combination of processing and storage infrastructure built to handle data-intensive workloads with security and reliability. In 2024, we announced architecture details for the Telum II processor and the Spyre AI Accelerator, designed for next-generation IBM Z mainframe systems that power generative AI at scale. And our storage business continued to grow as a premier data management platform for hybrid cloud and enterprise AI, while also helping to prevent cyber-attacks. In addition to these offerings, we continue to remix our portfolio through strategic acquisitions such as Neural Magic, StreamSets and webMethods to bolster our softwarebased AI and hybrid cloud capabilities. Our go-to-market approach Over the last five years, we have improved the way IBM goes to market, embracing a broad ecosystem of partners, developing experiential and technical sales methods, and adopting our own technology first, before we deploy it with clients. We are also pioneering the model of a software-led, integrated enterprise that is driving value for our clients and growth for IBM. At the end of 2024, software represented approximately 45% of IBM s total revenue. These solutions, in turn, generated demand for our full suite of integrated offerings: approximately 80% of IBM s revenue is generated by clients that buy across all three of our business segments (Software, Consulting, and Infrastructure). Increasingly, clients come to IBM through a thriving partner ecosystem, which has been essential in helping our clients capitalize on the massive growth and transformation IBM 2024 Annual Report opportunities presented by hybrid cloud and AI. We recognize that no single company can provide all the technology and skill needed to drive digital transformation. So, we have strengthened our strategic partnerships with key industry leaders like AWS, Microsoft, Salesforce, SAP, Palo Alto Networks, and Oracle. These partnerships serve our clients better and create a multiplier effect for IBM. Additionally, IBM has adopted a client zero philosophy, meaning we benefit from the same technology solutions we offer to our clients. In particular, we have aggressively adopted AI-powered automation to drive productivity. For example, 94% of IBM s basic HR queries are now answered by an AI assistant. Our contract drafting process is now 80% faster. Overall, we have delivered approximately $3.5 billion in productivity savings since the beginning of 2023. These efforts are not just about efficiency. They are the engine of innovation and growth that allows us to invest in our business and serve our clients better. A new era of innovation The mission of IBM Research has always been to invent what s next in computing creating solutions that meet the needs of our clients, thereby defining the future of information technology. Today, Research is driving powerful innovations across hardware, software, hybrid cloud, AI, and quantum computing, all of which creates value for our clients and growth opportunities for our company. For example, to better serve clients who told us that the large, unwieldy generative AI models on the market were too unreliable and expensive, IBM Research developed the open and trusted Granite family of models, released under the permissive Apache 2.0 license. The models deliver strong performance across many academic and enterprise benchmarks at a fraction of the cost. Quantum computing is another example of IBM Research s leadership. We have deployed more than 70 quantum systems, with more than 250 organizations joining our IBM Quantum Network. We have also scaled the industry s best-performing quantum software with Qiskit. In 2024, we introduced the IBM Quantum Heron processor, with reduced error rates, 16 times better performance, and a 25-fold increase in speed over previous systems. We expanded our IBM Quantum Data Center in Poughkeepsie, New York and opened the first IBM Quantum Data Center in Europe 3
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IBM Shareholder/Stockholder Letter Transcript:

Let   s Create
2024 Annual Report


Dear IBM Investor:
In 2024, IBM made significant
progress in becoming a higher growth,
higher margin business. We made this
progress by combining technology
innovation and consulting expertise
to drive growth, improve productivity,
and enhance operational efficiency -for our clients, and our own company.
Arvind Krishna
Chairman, President and Chief Executive Officer
Our strategy continues to build upon the two technological
foundations of AI and hybrid cloud, which clients need to
unlock the full value of their data. We have made a series of
investments to accelerate the delivery of that value to our
clients, from transforming the way we work to reorienting our
portfolio around powerful, AI-based solutions.
As this report demonstrates, these investments are paying
off, delivering meaningful returns for our shareholders,
clients, and partners. Today, IBM is a software-led, fully
integrated platform company, built to grow sustainably. This
is the ROI of IBM.
2024 Performance
For the year, IBM generated $62.8 billion in revenue, up 3%
at constant currency, and $12.7 billion in free cash flow     an
increase of $1.5 billion year-over-year. Our generative AI
book of business now stands at more than $5 billion since
inception. This revenue growth and cash generation enabled
us to make significant investments in the business and deliver
value to our shareholders. In 2024, we allocated more than $7
billion to research and development, closed 11 acquisitions
to enhance our capabilities, and returned more than $6 billion
IBM 2024 Annual Report
1

Software
Consulting
to shareholders through dividends. IBM expanded operating
gross profit margin by 130 basis points in 2024, driven by a
focus on high-value offerings and productivity initiatives.
Software revenue grew 9% at constant currency, reflecting
strong demand for our advanced capabilities in hybrid cloud,
data and AI, automation, transaction processing, and security.
Red Hat performed well as clients embraced its open hybrid
cloud platform.
Consulting revenue increased 1% at constant currency,
demonstrating our clients    continued need for expertise in AI
deployment, digital transformation, and cloud modernization,
despite a dynamic market environment.
Infrastructure revenue declined 3% at constant currency, in
line with product cycle expectations. IBM z16 is now the most
successful mainframe program in our history, highlighting its
enduring value to clients.
Technology innovation and consulting expertise
IBM   s mission to help businesses leverage technology
to scale and grow profitably is more critical than ever.
Technology is now the key to sustainable growth and business
transformation.
At the core of these transformations is artificial intelligence.
Our clients have moved beyond experimentation and are now
looking to scale AI in their businesses and generate return
from their investments. To achieve that return, they need
access to effective, affordable, and efficient enterprise AI.
2
Infrastructure
IBM has established an early leadership position in this
regard, building a portfolio of enterprise AI offerings focused
on generating ROI through productivity improvements and
automation. IBM watsonx provides a robust portfolio of
AI products for developing AI apps, managing data, and
governing the entire lifecycle of AI models. AI assistants
manage key tasks, including customer service and writing
code. We are developing pre-built AI agents that deliver
multitask reasoning for specific business domains. And our
Granite family of fit-for-purpose AI models, when tuned with
proprietary data, can deliver enterprise-grade generative AI
with up to 90% improved cost efficiency. Granite allows clients
to bring their own data into the models, and can be trained on
that data in weeks, not months.
Deploying AI at scale across an enterprise requires seamless
access to the data that feeds it. In this way, hybrid cloud
is an essential ingredient for maximizing the return of AI
investments. That is why 75% of AI deployments are expected
to use containers by 2027, and demand for our hybrid cloud
solutions remains strong.
Already, more than 90% of Fortune 500 companies are using
IBM   s hybrid cloud products and solutions. And last year,
we launched two new offerings to give clients a consistent,
open-source foundation for AI: Red Hat Enterprise Linux AI
and OpenShift AI. Together, our AI and hybrid cloud platforms
bring together the data, models, governance and monitoring
capabilities needed to automate workflows and drive
productivity. And they create a flywheel of growth for IBM,
with each offering pulling through demand for the others.

A driving force behind this flywheel of growth is IBM
Consulting, which fuels approximately 80% of our AI bookings.
IBM is the only technology company with a consulting
business at scale, which is a unique differentiator, especially
when it comes to helping clients deploy AI. Our 160,000
consultants apply their data, AI and hybrid cloud expertise
to guide business transformation for our clients. In 2024, we
augmented that expertise with a new platform called IBM
Consulting Advantage. By equipping our consultants with role
and domain-specific AI assistants, agents, and applications,
IBM Consulting Advantage enables deeper insights, faster
time-to-value, and improved efficiency compared to
traditional consultancy approaches.
Supporting this work is a powerful combination of processing
and storage infrastructure built to handle data-intensive
workloads with security and reliability. In 2024, we announced
architecture details for the Telum II processor and the Spyre
AI Accelerator, designed for next-generation IBM Z mainframe
systems that power generative AI at scale. And our storage
business continued to grow as a premier data management
platform for hybrid cloud and enterprise AI, while also helping
to prevent cyber-attacks.
In addition to these offerings, we continue to remix our
portfolio through strategic acquisitions     such as Neural
Magic, StreamSets and webMethods     to bolster our softwarebased AI and hybrid cloud capabilities.
Our go-to-market approach
Over the last five years, we have improved the way IBM goes to
market, embracing a broad ecosystem of partners, developing
experiential and technical sales methods, and adopting our own
technology first, before we deploy it with clients.
We are also pioneering the model of a software-led, integrated
enterprise that is driving value for our clients and growth for
IBM. At the end of 2024, software represented approximately
45% of IBM   s total revenue. These solutions, in turn,
generated demand for our full suite of integrated offerings:
approximately 80% of IBM   s revenue is generated by clients
that buy across all three of our business segments (Software,
Consulting, and Infrastructure).
Increasingly, clients come to IBM through a thriving partner
ecosystem, which has been essential in helping our clients
capitalize on the massive growth and transformation
IBM 2024 Annual Report
opportunities presented by hybrid cloud and AI. We recognize
that no single company can provide all the technology and
skill needed to drive digital transformation. So, we have
strengthened our strategic partnerships with key industry
leaders like AWS, Microsoft, Salesforce, SAP, Palo Alto
Networks, and Oracle. These partnerships serve our clients
better and create a multiplier effect for IBM.
Additionally, IBM has adopted a    client zero    philosophy,
meaning we benefit from the same technology solutions
we offer to our clients. In particular, we have aggressively
adopted AI-powered automation to drive productivity. For
example, 94% of IBM   s basic HR queries are now answered
by an AI assistant. Our contract drafting process is now 80%
faster. Overall, we have delivered approximately $3.5 billion in
productivity savings since the beginning of 2023. These efforts
are not just about efficiency. They are the engine of innovation
and growth that allows us to invest in our business and serve
our clients better.
A new era of innovation
The mission of IBM Research has always been to invent
what   s next in computing     creating solutions that meet the
needs of our clients, thereby defining the future of information
technology. Today, Research is driving powerful innovations
across hardware, software, hybrid cloud, AI, and quantum
computing, all of which creates value for our clients and
growth opportunities for our company.
For example, to better serve clients who told us that the
large, unwieldy generative AI models on the market were
too unreliable and expensive, IBM Research developed the
open and trusted Granite family of models, released under
the permissive Apache 2.0 license. The models deliver
strong performance across many academic and enterprise
benchmarks at a fraction of the cost.
Quantum computing is another example of IBM Research   s
leadership. We have deployed more than 70 quantum
systems, with more than 250 organizations joining our
IBM Quantum Network. We have also scaled the industry   s
best-performing quantum software with Qiskit. In 2024, we
introduced the IBM Quantum Heron processor, with reduced
error rates, 16 times better performance, and a 25-fold
increase in speed over previous systems. We expanded
our IBM Quantum Data Center in Poughkeepsie, New York
and opened the first IBM Quantum Data Center in Europe
3



shareholder letter icon 3/10/2025 Letter Continued (Full PDF)
 

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