Welcome, and thank you for standing by. . Now I will turn the meeting over to Ms. Patricia Murphy with IBM. Ma'am, you may begin..

Thank you. This is Patricia Murphy, and I'd like to welcome you to IBM's Fourth Quarter 2021 Earnings Presentation. I'm here with Arvind Krishna, IBM's Chairman and Chief Executive Officer; and Jim Kavanaugh, IBM's Senior Vice President and Chief Financial Officer.

We'll post today's prepared remarks on the IBM investor website within a couple of hours, and a replay will be available by this time tomorrow. I'll remind you the separation of our managed infrastructure services business, Kyndryl, was completed on November 3. As a result, our income statement is presented on a continuing operations basis.

Our results also reflect the incremental revenue from the new commercial relationship with Kyndryl. Because this provides a onetime lift to our growth, we will provide the contribution to our revenue growth for the next year. In the spirit of providing additional information to investors, our presentation also includes non-GAAP measures.

For example, all of our references to revenue and signings growth are at constant currency. We have provided reconciliation charts for these and other non-GAAP measures at the end of the presentation and in the 8-K submitted to the SEC.

Finally, some comments made in this presentation may be considered forward-looking under the Private Securities Litigation Reform Act of 1995. These statements involve factors that could cause our actual results to differ materially. Additional information about these factors is included in the company's SEC filings.

So with that, I'll turn the call over to Arvind..

Thank you, Patricia, and thanks to all of you for joining us today. Our fourth quarter results reinforce our confidence in our strategy and model. With solid revenue growth, we are on track to the mid-single-digit trajectory we had laid out in our investor briefing last October. The trend we see is clear.

Across industries, clients see technology has a major source of competitive advantage. They realize that powerful technologies embedded at the heart of their business can lead to seismic shifts in the way they create value.

This reality of technology being about a lot more than cost will persist and explains why clients are eager to leverage hybrid cloud and artificial intelligence to move their business forward. Our fourth quarter results illustrates the strong client demand we see in the marketplace for our technology and consulting.

IBM Consulting again had double-digit revenue growth as our ecosystem play continues to gain momentum. Software revenue growth reflects strength in Red Hat and our automation offerings. Infrastructure had a good quarter, especially with regards to IBM Z and storage.

Over the last 1.5 years, we have taken a series of actions to execute our hybrid cloud and AI strategy and improve our revenue profile, optimizing our portfolio, increasing investments, expanding our ecosystem and simplifying our go-to market. As we start to yield benefits from these actions, our constant currency performance improved through 2021.

Our most significant portfolio action was the separation of Kyndryl. You will remember we had initially expected the spin by the end of the year, and we completed it in early November. As we discuss our results, we'll focus on the new basis and structure that encompasses today's IBM.

As we look to 2022, we expect mid-single-digit revenue growth before Kyndryl and currency and $10 billion to $10.5 billion of free cash flow for the year. Both of these are consistent with our medium-term model. Let me now spend a few minutes on what we are seeing in the market, how we address it and the progress we are making.

We are seeing high demand for our capabilities in several areas. Clients are eager to automate as many business class as possible, especially given the new employee demographics. This dynamic is likely to play out over the long term. They are also using AI and predictive capabilities to mitigate friction in their supply chains.

Cybersecurity remains a major area of concern as the cost of cybercrime, already in the billions of dollars, rises each year. As clients deal with these challenges and opportunities, they are looking for a partner they can trust and who has a proven track record in bringing about strategic transformation projects.

This is why our strategy is focused on helping our clients leverage the power of hybrid cloud and AI. Hybrid cloud is about providing a platform that can straddle multiple public clouds, private cloud and as-a-service properties that our clients typically have.

Our approach is platform-centric, and the platform we have built is open, secure and flexible and it provides a solid base of the multiplier effect across software and services for IBM and our ecosystem partners. It starts with Red Hat, which offers clients unique software capabilities based on open source innovation.

Our software, which has been optimized for that platform, helps our clients apply AI, automation and security to transform and improve their business workflows. Our consultants deliver deep business expertise and they cocreate with our clients to advance their digital transformation journeys.

And our infrastructure allows clients to take full advantage of an extended hybrid cloud environment. This strategy, along with the differentiated capabilities we bring to bear to our clients, have led to an increase in platform adoption and new business opportunities across the stack.

We now have more than 3,800 hybrid cloud platform clients, which is up 1,000 clients from this time last year. IBM Consulting continues to help drive platform adoption, with about 700 Red Hat engagements for the year.

Clients like Dun & Bradstreet, National Grid, AIB and Volkswagen have all recently chosen IBM's broad hybrid cloud and AI capabilities to transform their processes and move their business forward. As I look back on the year, we had good success in broadening our ecosystem to drive platform adoption and to better respond to client needs.

During our investor briefing, we talked about strategic partnerships that will yield billion-dollar businesses within IBM Consulting. As we move towards that, we had more than 50% revenue growth this year in partnerships with AWS, Azure and Salesforce. This adds to the strong strategic partnerships we have with others such as SAP, Oracle and Adobe.

We're continuing to broaden our ecosystem reach. In the fourth quarter, we announced an expansion of our strategic partnership with Salesforce to run MuleSoft integration software on Red Hat OpenShift. We also created a host of new consulting services with SAP to help clients accelerate their journey to S/4HANA.

Together with Deloitte, we announced DAPPER, an AI-enabled, managed analytics solution. And we have expanded our partnership with EY to help organizations leverage hybrid cloud, AI and automation capabilities to transform HR operations.

We have also recently announced a host of new strategic partnerships with Cisco, Palo Alto Networks and TELUS, all focused on the deployment of 5G, edge and network automation capabilities. During 2021, we have been making changes to increase our focus and agility and build a stronger client-centric culture.

This includes putting experiential selling, client engineering and cocreation at the heart of our client engagement model. We have completed thousands of IBM Garage engagements. And today, we have nearly 3,000 active engagements. We've invested in hundreds of customer success managers to help clients capture more value from our solutions.

And we have upgraded our skills with fewer generalists and more technical specialists. This is resonating well with our clients, and it's starting to contribute to our performance. The most important metric, of course, is revenue growth, but we are also pleased to see our client renewal rates increasing and our recurring revenue base growing.

We are starting to see signs of sales productivity improvements, with average productivity per technology seller increasing from the first to the second half. At the same time, innovations that matter to our clients remain a constant focus, and our teams have worked hard to deliver a series of important innovations in the past quarter.

Starting with AI, we added new natural language processing enhancements to Watson Discovery. We're also combining and integrating products such as Turbonomic, Instana and Watson AIOps to offer a complete set of AI-powered automation software to address the significant demand.

This quarter, Red Hat announced that the Ansible automation platform is now available on Microsoft Azure, bringing more flexibility to clients and how they adopt automation.

In partnership with Samsung Electronics, IBM announced a breakthrough that reorients how transistors are built upon the surface of a chip to enable tremendous increases in energy density. In Quantum, we unveiled Eagle, 127-qubit quantum processor.

This is the first quantum chip that breaks the 100-cubic barrier and represents a key milestone on our path towards building a 1,000-cubit processor in 2023. While organic innovations are important, we continue to acquire companies that complement and strengthen our portfolio.

We made 5 acquisitions in the fourth quarter and a total of 15 acquisitions in 2021. 2 weeks ago, we announced the acquisition of Envizi. Many consumers are willing to pay more for products that are made by companies that are more environmentally sustainable.

As the world continues to move towards a more circular economy, our clients' need is the ability to manage and measure their progress. Envizi's capabilities complement our own and help us respond to that client demand. Sustainability is important across a number of stakeholder groups, including clients, employees and investors.

We are continuing to make good progress and are particularly proud of our diversity and inclusion scores, and our ability to attract and retain talent. Our efforts were recently recognized by JUST Capital who named IBM as one of America's most just companies.

Let me now close by emphasizing once again our fourth quarter results strengthen the conviction that we have in our ability to deliver our model of mid-single-digit revenue growth. Jim will take you through the fourth quarter and then provide more color on 2022. Jim, over to you..

revenue growth and free cash flow. As we enter the new year, I'll talk about our expectations for 2022 performance along those dimensions. Starting with revenue. We expect to grow revenue at mid-single-digit rate at constant currency. That's consistent with the model.

On top of that, in 2022, the new commercial relationship with Kyndryl will contribute an additional 3 points of growth spread across the first 3 quarters. Currency dynamics, unfortunately, will be a headwind. At current spot rates, currency is roughly a 2-point headwind to reported revenue growth for the year and 3 points in the first quarter.

For free cash flow, we expect to generate $10 billion to $10.5 billion in 2022. To be clear, this is an all-in free cash flow definition. The adjusted free cash flow view we provided in 2021 was useful given the significant cash impact associated with the separation and structural actions.

Now in 2022, despite the fact we still have nearly $0.5 billion of impact from the charges, we're focusing on a traditional free cash flow definition.

The $10 billion to $10.5 billion reflects a year-to-year improvement driven by lower payments for the structural actions, a modest tailwind from cash taxes, working capital improvements and profit growth resulting from our higher growth and higher value business mix. With this performance, we're on track to our model.

So now let me provide some color on our expectations for segment performance. Because this is a new segment structure, I'm going to spend a little more time and provide perspective on constant currency revenue growth and pretax margin in the context of our segment models.

In Software, as we benefit from the investments in innovation and our go-to-market changes, we're seeing progress in our Software growth rate. In 2022, we expect growth at the low end of the mid-single-digit model and then another 5 to 6 points of revenue growth from our external sales to Kyndryl.

We expect Software pretax margin in the mid-20s range for the year. We have solid momentum in IBM Consulting revenue and expect this to continue into 2022 as we help clients with their digital transformations.

This momentum and our book-to-bill ratio support revenue at the high end of our high single-digit model for the year, with double-digit growth in the first half. We expect low double-digit pretax margin for the full year with improving performance through the year as we make progress on price realization.

Infrastructure revenue performance will vary with product cycle. In 2022, with a new IBM Z introduction late in the first half, we expect performance above the model and a slight contribution to IBM's overall growth. On top of that, we're planning for about 2 to 3 points from the external sales to Kyndryl in 2022.

This supports a high-teens pretax margin rate for the full year. These segment revenue and margin dynamics will yield about a 4-point year-to-year improvement in IBM's pretax operating margin for the full year and 2 to 3 points in the first quarter. In terms of tax, we expect a mid- to high teens tax rate, which is a headwind to our profit growth.

Bringing this all together, we expect mid-single-digit revenue growth before Kyndryl and currency and $10 billion to $10.5 billion of free cash flow for the year, both in line with our midterm model. Patricia, let's go to the Q&A..

Thank you, Jim. Before we begin the Q&A, I'd like to mention a couple of items. First, supplemental information is provided at the end of the presentation. In addition to our regular materials, we've included a summary of our new segments for your reference and historical data on segment pretax income. . Sheila, let's please open it up for questions..

. Our first question comes from Amit Daryanani with Evercore..

Jim, I want to go back to this $10 billion to $10.5 billion free cash flow number for calendar '22. I know there's a lot of moving parts here. So it's more than what I think many had been modeling.

And if I think about the Analyst Day framework we have talked about, it was supposed to be a $10 billion free cash flow in '20, adding $750 million, if I remember correctly, annually. So I would put this somewhere in $11.5 billion range, I think, is what I would have expected. So can you just talk about either relative to that, if you want.

What is the delta to free cash flow? What are the puts and takes there? That would be really helpful..

Sure. Amit, thank you very much for the question.

First, let's just ground everyone because I want to make sure we have absolute clarity as we're returning to reporting all-in free cash flow to, one, align to our consistency of IBM's post-separation baseline, to your point, the $10 billion in 2020 and, more importantly, to align to our forward-looking guidance, which we talked at Investor Day, with a midterm model of $35 billion cumulatively over 2022 to 2024.

For 2022 specifically, as you heard me say, we expect free cash flow to be between $10 billion and $10.5 billion all-in. And that puts us right on track for the $35 billion, mainly, Amit, because it includes still the remaining structural actions charges of about $0.5 billion in 2022.

And when you look at that, because of structural actions, you're not going to have linearity in that $35 billion throughout 2022 to 2023 to 2024. So let me talk just a little bit so we get clarity around the drivers, to your point, at the heart of your question.

First, we do have about $0.5 billion remaining in the cash impacts from the structural charges, as I stated earlier. That means year-to-year, it's about $1 billion, give or take, benefit. Second, we anticipate about $0.5 billion of working capital efficiency just based on our AR dynamics around volume.

And also, we're entering a mainframe cycle late in the first half. Third, very minimal tailwind with regards to cash tax, which basically means the majority of this has to be delivered on our operational profit and invest less, I should say, investments in capital expenditures.

And that's going to come from revenue growth at our model, mid-single digit, before we add on Kyndryl; operating leverage, which we talked about, about 4 points improvement for the year; a mainframe cycle; and us continuing to address the remaining stranded costs from the separation of Kyndryl as we move forward.

So we feel very comfortable, one, $10 billion to $10.5 billion puts us in position to that $35 billion; and two, more importantly, that this cash provides us with ample financial flexibility to continue to invest in our business, both organically and inorganically, and return significant value to our shareholders with our committed dividend..

Our next question comes from Katy Huberty with Morgan Stanley..

Arvind, I couldn't agree more with your comments about the structural uplift in IT spending from technology diffusion across all sectors.

But as you think about the stock market volatility over the last several weeks, is there any reason to believe that there could be some near-term cyclical impact from that volatility? And then maybe if you can also comment on whether the recent pullback in software valuations increases the likelihood that you might look at doing bigger M&A this year..

Thanks, Katy, for the question, and thank you for also noticing and acknowledging the robust IT spending environment. Look, Katy, I mean like if I react to every stock market intraday volatility, that's a full-time occupation. I think today showed that actually these cycles are hard to predict.

And if I back up and look at our clients, I think they are not really reacting to these volatilities. We saw this in the middle of 2020 also, not just in 2021 and 2022. For the first time, despite a down business cycle in 2020, we saw people actually decide to keep up their IT spending.

Now I'll acknowledge in 2020, they did put a break on capital spending within IT, but they all acknowledge that IT spending was critical to how they would come out.

And that showed up in 2021 spending, okay? So I suspect -- look, we are not as much expert on this as many of you on this call, but I would suspect that this volatility we are seeing recently will not have much of an impact.

Now if it becomes into an overall bear market, correction, that would be different, but I don't think we're anywhere close to that. I think in terms of near-term cyclical impacts, I don't really see them. Our clients tend to be people who are in much more -- what we provide technology for is much more in the critical applications.

People need them for doing online payments. They need them for authorizations, reservations, retail banking, health care, telecom, within the government for critical applications. So we don't tend to see much of a short-term cyclical impact. Now on your last question, valuations.

Look, I'm always clear, valuations -- M&A has to have an economic benefit for our company and our shareholders. Has valuations come down? Certainly, some targets may become more approachable that were not previously approachable. And I've said before, look, we have a little over $20 billion of flexibility over the next 3 years.

So I'll just leave it at that. That's our total flexibility. As prices come down, certainly, more things come within range..

Our next question comes from Toni Sacconaghi with Bernstein..

Really, just some clarifications. You talked about the year-over-year improvement in PTI of about 4 points. It looks like the year-over-year Kyndryl contribution of $1.8 billion in revenue should come in at extremely high marginal contribution, maybe 70%, and then you're going to have a year-over-year contribution from fewer charges.

So maybe you could dimension each of those and talk about whether you believe underlying PTI will improve. And then similarly, if you could just clarify your expectation for the acquisition contribution to revenue in 2022. And you didn't mention the divestiture of Watson Health.

How we should think about that? Is that in addition to -- should we be factoring it in on top of the guidance? Or does your guidance include the divestiture of Watson Health's revenues?.

Toni, I'll take this. Thank you very much for the question. A handful there to address overall. So if I got it correctly, first of all, yes, we talked about our guidance, coming off of a very solid fourth quarter, gives us confidence in the foundation to really build on our midterm model. And we said 2022 would be the next step.

We have progress, more work to do, mid-single-digit growth pre the Kyndryl contribution, operating margins up about 4 points and then free cash flow, as I answered Amit, at $10 billion to $10.5 billion. So when you look at that operating profit overall, first of all, yes, we're very transparent in our 2 key measures of success.

Number one, the contribution of revenue growth. And we said we're going to be up mid-single digit prior to adding the Kyndryl 3 points roughly for the year. And the second key measure, which we've got our entire business, our operating model, aligned to, is free cash flow generation.

And we're very transparent in our free cash flow generation that, that is all-in, with a baseline -- IBM post-separation baseline of $7.9 billion we reported in '21 going to $10 billion to $10.5 billion, on its way to delivering $35 billion cumulatively over time. Within that, I gave you the breakout of the bridge on cash flow.

No matter how you cut it, we are going to invest more in capital expenditures this year. But when you take out the working capital efficiency of $0.5 billion, a very modest cash tax tailwind, and you take out the $0.5 billion of structural charges, you get substantial operating profit growth.

And I would tell you, although we're not going to disclose based on commercial competitive reasons around the profitability of Kyndryl overall, and I don't think you would expect us because we don't do that with any strategic partner or client, that, that is a minimal component of the required operational profit improvement for 2022 overall.

So we feel pretty good about the confidence in our guidance. It positions us on that midterm model, and it gives us tremendous financial flexibility to continue to invest, to extend our hybrid cloud leadership, invest in innovation to bring on new technology and return significant value back to our shareholders overall. I think that was the first one.

The second one, acquisition revenue contribution. Obviously, we've got work to do to close this. This won't close until later in the second quarter. And at that point in time, we will disclose information around Watson Health and what the implications are to our guidance overall, and we'll update investors as we always do..

Our next question comes from Wamsi Mohan with Bank of America..

Arvind, as you think about the midterm model and layer in some of these puts and takes that you guys highlighted in 2022, you could have up to maybe a couple of points of benefit from M&A and maybe up to a point from mainframe.

As you look into 2023, some of these elements will turn into headwinds, particularly maybe up to 2 points from infrastructure.

What are the things that you're looking at that should grow better than 2022 and 2023 to offset some of this to get back to that mid-single trajectory? And Jim, can you address 2022 seasonality for revenue growth and cash flow given the Kyndryl separation and really very different timing on the Z cycle?.

Yes. So Wamsi, thanks. Let me address the first part of the question, the mid-single-digit growth in 2022 going to 2023.

Let me remind you, when we did our Investor Day in early October, we talked about the mid-single-digit growth comes from -- about 2 points of that for IBM comes from the Consulting growth, about between 1 and 2 points comes from the Red Hat growth and then we would get some from Infrastructure, aka mainframe, but there's more than mainframe.

There's storage in there, and there's also power product cycles and then organic software. If you put that all together, you would get more than mid-single digit in a given year. But we begin to see cycles of that. For example, on mainframe, when we say it comes late in the first half, that means it's really a second half '22 contribution.

That carries on then into the first half of '23, maybe until the third quarter, maybe longer, depending on the cycle. If I look at Red Hat, we fully expect that to carry on. If I look at Consulting, we expect that to carry on.

So if I look at all the underlying components and then as I bake in the acquisitions into software, those will begin to contribute a bit more and a bit more each year. You asked about the overall acquisitions. I think that will give us about a point each year, which is what we had said before.

But that is inside what I talked about, the 2 points and the 1 to 2 points and the point and the point. And so that is the thesis here. And by the way, so if you look at what I laid out, '22 and '23 look remarkably similar, not that different.

Jim, you want to -- the seasonality question?.

Yes. Wamsi, thank you very much. A very important question when we think about 2022, just building on what Arvind just said right there. If you think about the revenue growth profile and how it's going to play out in 2022, as we stated earlier, we expect the mainframe cycle this year, and that will happen late in the first half.

So read that minimal contribution in 2Q and then mostly in the second half.

But second, really, the big point I want to get out is, you can quite expect, due to the separation of Kyndryl, which was a highly annuitized-based business, I think we're going to have a different business skew throughout 2022 on top of the product cycle that I just talked about earlier.

I would expect somewhere in the neighborhood, around profit, to be about 40-60 first half, second half. But I would tell you, underneath that 40% in the first half, it's going to be skewed more towards second quarter just given the new introduction of our mainframe cycle. And also last year, we had a very strong first quarter mainframe.

We grew over 20%. So we're wrapping on a GA plus 11 quarter at the end of its cycle on the most successful mainframe program we've had, program to date. We're very late in that cycle. So I would expect more of that profit to be in second quarter and again 40 to 60 first half, second half..

Our next question will come from Jim Suva with Citigroup..

Both Jim and Arvind, you guys have done a tremendous amount of heavy lifting and work over the past couple of years, all the way from integration of Red Hat to spin out of Kyndryl.

Looking ahead now, just strategically, my one question is, are we looking at the core company as now it's really time to harvest everything? Or are there still some more transformational or pruning or spinning out going on? And I'm not referring to the Watson Health, I'm talking about more bigger things.

It seems like now it's time to start harvesting things, but maybe I'm not hearing your comments correctly..

Jim, let me take that. This is Arvind. Look, I think that we have done a lot of the heavy lifting we need. I fundamentally believe that we have the right portfolio and we have the right focus to be delivering on our midterm model. Maybe I didn't quite understand the word harvest. I wouldn't say harvest.

We have the correct portfolio to be able to grow where our clients have got demand and where the market has demand. We are now approximately a 30% consulting company, a 70% technology company. It's -- about a little bit under half is software. If I look in software, yes, there is a portion that is very much focused on transaction processing.

We believe that model is going to be a mid-single-digit decline over the very long term. And if you look at some of the dynamics that Jim Kavanaugh talked about, you kind of see that then if you go over the past couple of years.

Then if I look at automation, security, data and AI, I think these play very much into where there is a lot of demand in the market. If I look at consulting, that's how clients are going to go get their projects on digital transformation completed.

And then if you look at hybrid infrastructure, we are quite focused in infrastructure on the areas that align to our high-value model. And if I look at both storage and mainframe, they give us a lot of benefit to also help drive the other parts of the portfolio.

If I got it right, Jim, to your question, no, you should not expect any major strategic divestitures like we just have talked about with Kyndryl. I think those are behind us. Now we have the portfolio that allows us to deliver on our medium-term more..

Our next question comes from David Grossman with Stifel..

This is a question for Jim. Jim, if we take your revenue growth comments about '22 and the margin comments, it would just seem to yield net income below your free cash flow guide. And obviously, I'm assuming the new model, given the combination of software and professional services, would yield free cash flow of about 1x on a conversion basis.

So if that math is right, can you help reconcile the difference between the implied EPS guide to that $10 billion and $10.5 billion of free cash flow?.

revenue growth and free cash flow. So I am not going to talk about EPS guidance. And by the way, EPS, as you know quite well, there are many ways of getting to an EPS number. But I've given the breakout of the revenue growth overall. We've been very transparent mid-single digit.

We said we're going to get an operating leverage improvement of about 4 points. When we broke that out by segment, we're going to get Software, we expect, up to mid-20s on our path to approaching 30 in our midterm model. We said around Consulting at the high end of our high single-digit revenue growth model.

We're going to approach about 10% coming off of about 8.5 point margin business in 2021. And then Infrastructure, given we've got a product cycle, we expect above model on revenue, as Arvind answered earlier. It'll be a slight contribution to IBM, and we expect the operating margins in Infrastructure to be in the high teens.

When you take all those components, what I just brought out, and then you do the free cash flow bridge, you get to quite healthy profit contribution to deliver that free cash flow.

And I think, David, that is the focus that Arvind has got, 250,000 IBMers mobilized on revenue growth, that operating margin by segment to deliver the product mix and productivity and that free cash flow. And that's what we're going to continue to guide on as we move forward..

Our next question comes from Kyle McNealy with Jefferies..

This one is about the trajectory of the Infrastructure business given the moderation in growth that you saw last quarter in Q3 and then the better performance you saw this quarter.

Do you got any added confidence now after the performance this quarter that we won't see another soft quarter like in Q3 before we get into the next IBM Z cycle in the second half of the year?.

Kyle, maybe I'll start there. In the third quarter, I think we stated, even when we finished the third quarter, that we saw a pause on some of the CapEx purchases in Infrastructure because people were digesting what to do around the Kyndryl separation. That particular factor I do not believe is going to show up again.

Now that said, as Jim said a bit earlier in an answer to one of the other questions, this is the 11th quarter of mainframe. When we look at that, we do expect softness on mainframe in the first quarter but not in the remaining quarters.

I'd say that that's the only critical dynamic that could be different if we look at quarter-to-quarter, but that is expected and baked in, in what we're talking about for the year and what we're talking about in terms of infrastructure performance which, for the year, we do expect it to be better in '22 but more of that in the second half, as Jim pointed out earlier..

Our last question will come from Brian Essex with Goldman Sachs..

Maybe for Arvind, some really nice business transformation technology consulting growth.

And I'd love to hear your comments of -- or at least if you can reflect on customer conversations and what those have been like and how you might characterize some of that business activity, whether you feel as though we're in the early stages, maybe the middle innings of technology transformation efforts, how would you frame that business? And how much of that business is a leading indicator for Red Hat and automation growth?.

is it how do I do omnichannel and multichannel, is it how do I do resilience in my supply chain, is it about how do I use every warehouse and store as a point of delivery not just for physical but for physical or online commerce.

As we begin to look across these topics and then as we look at the added cyber threats that come in, these do create a huge pull from clients on how do you improve the end-to-end customer experience, how do you improve the resilience of their supply chain, how do you improve the experience for employees, how do you begin to use -- I'll use the word bot because I'm a technologist, other than we use the word digital worker, that's probably a more correct word, to take care of all the upcoming -- how do you use our demographics on the skill shortage that is endemic in technology now.

And that is sort of playing in. But I don't believe that the skill shortage is because of COVID. I do believe COVID may have exacerbated or created a pull-in of those demographics, but those, I think, are going to last us for the decade. Now I think that, that is a leading indicator of automation, Red Hat cybersecurity growth, for sure.

I would call it -- it's not identical, meaning you're not going to see the same percentage from one to the other, but you absolutely will see correlation that is significant between those.

And when Jim talked about the number of Red Hat engagements and then we talk about the Garage engagements from Consulting, those are then proof points of that correlation. So Brian, thank you for the question. And that is, by the way, why we see a lot of our confidence in the next few years of revenue growth.

So first, Pat and Jim, thank you, guys, for answering your part of the questions. Let me now make a couple of comments to wrap up. And I'm going to end where I started the call. We've been taking actions that position our business to address attractive hybrid cloud and AI opportunity.

Our fourth quarter results and expectations for 2022 are a first glimpse of today's IBM and to reinforce our confidence in our strategy and our model. I hope that all of you are as excited about our future as I am. And I look forward to speaking with all of you again soon..

Sheila, can we turn it back to you to wrap up the call?.

Thank you. Thank you for participating on today's call. The conference has now ended. You may disconnect at this time..