IBM posted 2023 revenues of $62 billion, with $17.4 billion in the fourth quarter. While business segments like software, infrastructure and consulting grew in Q4, IBM SVP and CFO Jim Kavanaugh acknowledged the company could have performed better in terms of its cybersecurity products and services.

“Security – yes, we [had] an execution gap on security,” Kavanaugh told investors during IBM’s Q4 2023 earnings conference.

Nestled within its software segment, which delivered $7.5 billion in revenue overall, security revenues fell 5% in Q4. But Kavanaugh views this as a glass half-full scenario. “We [have] an opportunity to go fix it in 2024,” he said.

As Enterprise customers prioritize cloud modernization, artificial intelligence (AI) and cloud-based Application development projects, IBM is doing the same.

CEO Arvind Krishna noted Big Blue’s focus on digital transformation and AI initiatives has been consistent throughout the year, resulting in signings growth of 8%.

To that point, IBM’s integrated value, investments in talent and partnerships, and focus on execution helped the company differentiate itself in 2023.

Krishna highlighted IBM’s recent portfolio repositioning meant to address top customer priorities – like consulting support for new technologies. “There's real synergistic value of consulting in a hybrid cloud and AI platform-centric company,” he said.

IBM is claiming leadership in this area as the “only technology company with the consulting business at scale,” Krishna touted. “This unique, integrated value proposition helps our clients implement digital transformations and generative AI solutions.”

But “consulting is even more powerful when working in collaboration with our partners,” he noted. IBM strategic partnerships represent more than 40% of its consulting revenue and helped deliver double-digit growth in consulting signings and revenue in 2023.

Specifically, Amazon Web Services (AWS) and Microsoft Azure consulting groups saw more than 50% increases in revenue growth, according to the CEO.

Despite the failed execution on security, Krishna described this quarter’s results as “solid” and a demonstration of IBM’s focus on execution. “When you look at our three lines of business in consulting, we have consistently delivered solid revenue performance,” he said.

“The early work for clients around data architecture, security and governance is critical and hard, and we think consulting expertise is going to be crucial here. Just as we quickly ramped a meaningful practice around Red Hat to address the hybrid cloud opportunity, we are on a similar trajectory with generative AI,” Krishna said. “Consulting is a core driver of our value proposition for clients.”

Red Hat grew 8% year over year in Q4 and is expected to generate a 17% increase in bookings for IBM in 2024. Kavanaugh highlighted two main products as key to the segment’s growth: Red Hat Enterprise Linux (RHEL) and Red Hat OpenShift.

Following a 14% Red Hat bookings increase in the previous quarter, the 17% figure shows that “the acceleration is happening,” Kavanaugh said. “We feel confident, given the client conversations, that these are all going to lead to Red Hat growth,” he told investors.

The “share volatility” that occurs in “the unfitted open-source world” drives a significant amount of demand for Red Hat services. RHEL users, for example, are increasingly concerned about patching, security and protecting their infrastructure from bad actors. And independent software vendors (ISVs) – in addition to Enterprise customers – are beginning to embrace this reality, Kavanuagh said.

The other major growth driver, OpenShift, is “a fundamental,” he touted. “Most of our clients now acknowledge that a hybrid environment is their reality. … In that environment, OpenShift is the leading platform that gives them the flexibility to take an Application and run [it] across [public and private cloud environments].”

To that point, IBM executives are full of “confidence that Red Hat will grow and provide [an additional] two to two-and-a-half points of overall software revenue,” Kavanaugh said.