[Music] from the cube studios in Palo Alto in Boston it's the cube covering the IBM think brought to you by IBM welcome back to the cubes coverage of IBM think 2020 the digital version of IBM think Bill Smith is here he's the general manager of IBM Global Financing bill thanks for coming on thank you very much for having me up I'm looking forward to it yeah me too so you know I remember the days of the the glory days of IBM you know leasing I used to run the leasing program for a couple of years at IDC and it was just it was an awesome time but things have changed a lot I mean iBM has really transformed its financing army what do we need to know about today's IBM Global Financing well some things are still saying but as you said a lot is different we constantly are celebrating our 40th anniversary this year a big part of our business is now software and services financing a lot of project man Singh we still do a lot of hardware business but it's a much much smaller portion of our thirty billion dollar asset base so it's a great business it was a great business back then when you were involved in it the very profitable and and interesting business today as it was then as I said big difference though a lot of software and services yeah well I've of course I would have mentioned that most if not all mainframes are still leased but now you've expanded it to many many more areas what can you tell us about you know some of the financial metrics you know what's the profile of the business look like yeah sure it's a it's a big business it looks a lot like a bank and we're around 30 billion in asset we do business and you know 40 plus countries around the world 26% return on equity most of the portfolio's very high percentage of that portfolio is investment rate so a couple other key metrics is we we actually issue our own debt we became an SCC registrant a couple years ago we have a you know many debt holders we only have one owner and one equity owner and that's IBM it's a very good business but 2% of IBM's revenue but about 10% of IBM's from yeah well so now this is an important aspect that I want to join to it when people you know look at the IBM balance sheet they'll you know go out or whatever Yahoo Finance and say oh my gosh look at all this debt must be you know I know of course the redhead acquisition is part of that but you're carrying a lot of the debt as part of the financing operation but people need to understand it's a very profitable and very high quality debt and if we could just address that one of the big benefits to becoming an SCC registrant is the amount of transparency that we were able to provide the investors so unlike other captive financing companies they just get rolled in to different units or parts of the books you know we actually report in the segment reporting every quarter we certify just like they you know public company would we're still a wholly owned subsidiary but the level of transparency is really great for the investors which is why you know debt holders were able to Willington by our paper it's still a very client based business we do very specialized structures we only do business and NIT as I told the board many times I'd be on board many times we don't do planes trains and automobiles we only do we only do I see and and really you know 99 percent of our businesses is IBM only so you talked about branching into software and services I'm interested in how the the client base has has transformed as a result of that sure you know there's a lot of digital transformations going on there's still a lot of ERP implementations around the world very large project so we we described it as project financing so if client will come to us and say bill we'd like to match the benefit of this very large GBS or services engagement that the IBM team is leading we like to match the benefit when we have the cash outlay so we'll put a structure together that will delay the payment for when those benefits begin to come online for the enterprise and then match payment with when benefits are actually received it's proven to be a very very effective financing instrument for us but highly effective economic instruments for the clients also gives if I'm you know contracting with IBM services you've got a major incentive for the services organization to deliver value as soon as possible and that aligns everybody doesn't it it absolutely does you know we have a lot of business partners where they'll do similar structures as well so other integrators you know if the redhead acquisition and and clients moving to a hybrid cloud model sometimes there's a migration that will take place between the traditional legacy systems and when they move that cloud well that bubble of been we take Dera so will will finance that migration effort for the client and again to match their cash outlays with when they receive the benefit that I've left from that cloud migration in the day there were tons of leasing companies who would take the risk and predict the residual values and then they'd take the paper and and and then it was just an awesome business and of course the government provided some incentives to do that with the investment tax credit what about things like refurbished equipment is that's still something that you do today or is that a thing of the mainframe pass that's great yeah that's a great question you know it's a it's still a really important and a sustainable business for us we we take equipment back that comes off of a lease or sometimes alone but typically a lease and we will refurbish that or reman factor that equipment and then put it back into market oftentimes it goes into our services organization for them to use with their clients the global technology services typically you know we will we will matram a fact or a remarket about 29,000 IT devices a week 16,000 tons of idea quipment around the in a year around the world so these remanufacturing refurbishing centers so it's a even though the hardware business has come down in its percentage of IBM's business compared to software and services it's still a very very big business as you can see by the the size of the number of equipment and the tonnage what about some of the initiatives that are so you mentioned you know the digital transformation a lot going on with cloud machine intelligence I mean those big projects you know some of them are still multi-year you know seven weeks people say oh there's no more multi-year projects but digital transformations are multi-year projects even though you might take them in chunks but I'm going to capitalize those can I finance them as well what role does does IBM finance play in that you absolutely can and and that is a big big part of our business today though the the client will they look I've got a very large digital transformation project going to take place in four countries we are looking for an opportunity to match those cash outlays with when those countries come online or when we begin to receive the benefits we also want you've been and some of the software that goes with this digital transformation and we also want to spin and the IT infrastructure that's required so we may put those services software and hardware on a different financial instruments but it looks like you know one total bill for the client and it and its global it's a global footprint so we're able to handle the different currencies around the world and and again most importantly match those cash outlays with when the benefits are received so bill you know as long as I've been in this business the IT investments from a CFOs perspective have always been viewed as a higher risk granted higher reward but but you know the the CFOs would say okay you're gonna have to have a little higher IRR for this one because you know the business moves so fast technology changes so quickly how are you seeing the CIO - CFO conversation evolve what's your advice to see iPods in terms of how they talk to two CFO's that's another really good question so I was just on with actually new client this morning one was the F of the other one was a treasurer and they were asking my opinion about this financial instrument and and and getting some advice actually the conversation went look it's not really cost the debt issue the cost of money is always part of the economic decision but oftentimes those clients use financing instrument as a way to manage the asset manage the asset throughout the life the project they also want to focus on the delivery the quality of the delivery I think that takes place during these very very large project financing engagements so the CFO specifically said look I really like business case it's quite clear when we're gonna receive these benefit what I'd like to know Bill is how do you view the risk of the implementation and you know we were able to share with them the risk work that we do with with GBS team our level of confidence that it will be done on time and on budget and the skill level of the of the partner team that's been assigned so it actually has allowed us to have a different conversation with different group or senior level at the account CFO Treasury sometimes the controller you play an important role in de-risking the the business case and as well I mean I would imagine right now in there you know these on certain times that you know IBM Global Financing can provide liquidity to businesses who need it that you you know are confident you know are stable business but might need some help you know getting through this pandemic we can and as you said the what makes us a little different is you know we make credit decisions on what we call arm's length credit visions you know for a standalone albeit at the financing company so we're very very focused on maintaining the right investment grade of the portfolio we're going to make really really good prudent risk decisions you know that being said we have some fabulous IBM clients that have been clients for a long time we work very closely with them understanding their financial structures what's what's important to them and they're very transparent with us about you know with financial challenges they have so we'll continue to provide that liquidity we are going to be very prudent but we'll certainly help those really good clients well last question it's kind of where do you see this going what's your kind of vision for IBM global global finance and give us a little glimpse of the future sure you know I think you'll see us continue to migrate in the direction of the IBM company moves the IBM company is aggressively moving towards a hybrid cloud model we'll continue to provide those migration services will continue to do you know some short-term financing a part of the business we didn't talk about was the commercial financing we provide short-term working capital through IBM 6000 isness partners so to help them with their free cash flow running their businesses you know that's a pretty big business for us we'll do about you know 14 billion or so in financing to that commercial financing business so I'll see that continue as well and then finally I'm sure you'll see us continue to grow the software and services financing as well and we'll stay with the very very high anything rate for whatever is left of IBM's Hardware portfolio point you made about the partner financing is huge like you said it helps them bridge their free cash flow it makes IBM a more attractive partner for through those resellers and partners it does and we've been in that business for a very very long time oftentimes we are one of the you know largest predators for those partners so the liquidity that we provide Danville allow them to run their businesses day to day with that short term working capital is something that we're very committed to you over the long term for IBM product and services so IBM Global Financing a very important and strategic part of IBM's business a differentiator a very few companies actually can provide that type of service to their clients and so bill really appreciate you coming to the Kuban and sharing that with with our audience great to have you back yeah very much Brad you've been a real pleasure - our pleasure as well thank you for watching everybody this is Dave Volante for the cube our continuous coverage of IBM think 2020 we'll be right back right after this short break you're watching the cube [Music] you

>>from >>Around the globe, it's the cube with digital coverage of IBM think 2021 brought to you by IBM. >>Welcome back to IBM Think 2021 we're gonna dig into the intersection of finance and business strategy. My name is Dave Volonte and you're watching the cubes continuous coverage of IBM thinking with me is brian Hoffman is the chief operating officer of IBM Global financing, brian, thanks for coming on the cube today. >>Good morning, Great to be here. >>Hey, good morning. So I think we've heard a lot about the impact of hybrid cloud ai digital transformation and I wonder as a finance person in a former CFO, what do you see? And how do you think about some of the key considerations and financials and strategies that are supporting these major projects? Right? We got to come to the CFO and say, hey, we want to spend some money and here's the benefit, here is the cost. How can see IOS and their teams work with CFOs to try to really accelerate that digital transformation. >>Great question. And actually that question, I think I might have answered it a little bit differently, like two years ago, a year ago before the pandemic, I think it's actually changed a little bit with pandemic in my experience is the CFO people would come into me for projects and there's three ways you can justify it, but you can justify short term immediate, quick payback kind of hitters, you can justify it with, you know, improving our efficiency or effectiveness, um you know, reducing costs in the long run, making the client experience better or more from a strategic point of view, um you know, growing revenue getting to new clients, improving margins right? And so the the hybrid cloud transformation journey really still addresses those three things and when we come in, a lot of people focus like I said, on that third strategic point, but but all three of those come into play, and what's really interesting now is is as I'm dealing with it, I'm talking to other Cfos. The pandemic is really, if you will throw in a wrinkle in here, right? So the clients that I'm talking to, the IBM clients, they have to operate their business very differently and and their business models, some of them are changing clearly. Their clients, their business models are changing their operating differently as well. Um So, so our clients have to react to that and Hybrid Cloud and that that that type of of a structure really can support that. So there's really an emphasis here now to act with much more speed on this journey to get moving on it to get there because you have to make these changes and doing those two things in concert really has a ton of business value. >>Yeah I mean the cfos that I've talked to in the C. I. O. S. It's really kind of industry dependent, right? If you're in airlines or hospitality was like uh we got to cut costs. A lot of organizations said okay we're gonna support remote workers put in V. D. I. Or deal with endpoint security or whatever it was. But we're actually gonna double down on our digital transformation. This is we're gonna lean into an opportunity for us to come out stronger. How did you guys approach it in terms of your own internal digital >>transformation? Yeah. We we we were working on our digital transformation uh a little bit before the pandemic and it kind of followed those those three uh those three items when they when they first started implementing it, they came in and said hey if we can if we can move to a cloud platform, our infrastructure savings will be pretty significant. You know the I. T. Infrastructure savings will be 30 to 40%. So you know, quick payback CFO types love that. So you know, we went forward with that. Um but then quickly we saw the real benefits of moving to a hybrid cloud strategy. So just as an example as we were making some of these changes, we found a workflow tool in one of our markets in europe, that was a great tool and uh if we wanted to implement that across the business um in the old days, You know, we're in 40 countries, we've got 2500 employees, three lines of business. It would have been very complex because our operating structure is is very robust, very complex. Um Probably have taken a year, two years to do that. But since we are now on a cloud platform we got that rolled out that workflow tool rolled out across our business in months, Saving 20-30 of of workload. Being much more um efficiently getting to our clients and reacting quickly to them. And in fact that tool got adopted across IBM because that cloud platform enabled that to happen. And then the great thing which I didn't even realize at the time but now thinking more strategically um are my I. T. Resource earlier was running at about 50 50 50 people working on maintenance. The kind of things with 50 on development as we've now transition to this cloud. My I. T. Resources now 70 plus percent dedicated to new development. So now we can go attack new things that really provide customer value in the pandemic. You know the first thing to look at is can we get into more um you know electronic contracts, E signatures, things that would provide value to customers anyway. But in the pandemic is like really a significant, you know differentiator for us. So all those things were enabled by that journey that we've been taking, >>interesting. I mean most of the CF I uh in fact every CFO I know of a public company took advantage of cheap debt and improving their balance sheets. And liquidity is not the problem today, especially in the tech industry at the same time. You know I'm interested in how companies are using financing. They don't want to necessarily build out data centers but they do want to fund their digital transformation. So what are you seeing in terms of how your customers are using financing? You know, what's the conversation like? What advice are you giving? >>Yeah. So um you know, it depends a little bit on the type of customer, like you said, you know, we we deal with a lot of the biggest, strongest customers in the world. And, and as we deal with them, financing really helps the return on their investment, right, aligning the payments of those cash flows for when they're getting the benefits. Uh And and we see a real good value in improving the return on those investments in helping, you know, if it's something that's going to go to the board that really makes a difference to them. Uh So, you know, that that's always been a value proposition. It continues to be. Um The other thing that's helping now, like you said, is even in this environment, people want to accelerate this transition. Um but it's a, it's a, it's a big time of uncertainty. So, you know, some of the smaller clients, some of the more uh you know, the industries that are a little more cash constrained airlines, et cetera, you know, they're looking for the the immediate cash flow benefits. Um But many of the cfos are saying, hey, listen, you know, I can I want to go as fast as I can help me put together a structure that lets me, you know, get this in place as quick as possible, but not below my budget is not make me take too much risk in this time of uncertainty, but keeps me moving and I think that's where financing really comes in as well. Um And we're kind of talking much more about that value proposition than just if you will be improved ri proposition that we've had all along. >>I want to talk a little bit more about IBM global financing. I mean, people, a lot of times people misunderstand it. You know when you look at I. B. M. S. Debt, you gotta you gotta take out the piece that IBM global financing because that's a significant portion and that's sort of self self fulfilling. But what do people need to know about IBM global financing, >>We actually run three different businesses and we've been transforming our strategy over time. So you know right now with with IBM being all in on hybrid, we are very focused on helping IBM and IBM clients on this digital journey on IBM growing their revenue. Um you know, we we in the past have been more of if you're really full service. It finance are doing a lot more than just IBM but we are really focused now on on helping IBM. So I think the best thing for for IBM clients to know is as you're talking to IBM about the total solution, the total value profit IBM brings that financing, that cash flow solution should be embedded in what they're looking at and can provide a lot of value. Um You know, the second thing I think most people know is we provide financing for IBM s channel, so you know, distributors, resellers etcetera, if you're an IBM distributor or reseller, you know about us, because just about 100% of IBM partners use us to provide that working capital financing, uh you know, we have a state of the art platforms were just so integrated with them. Again, I don't have to I don't have to do a sales pitch on that because they don't know us. Um and the third one just because people might not realize this is, we do haven't we call it an asset recovery business, um it's a pretty small business, you know, it's bringing back equipment that comes off lease, so that uh is used by IBM internally. Um and while, you know, it's not, it's not as well known, I'm pretty proud of it because it really does help with the focus that the world that IBM has on sustainability and reuse and um and making sure that, you know, we're treating the planet fairly here, so that that's a small but powerful piece of our business well, >>You're quite broader than leasing mainframes in the 80s, >>that's for sure. >>Talking more about give, you can double click on that sort of hybrid cloud and obviously machine intelligence is a big piece of those digital transformation. So, so how specifically are you, are you helping clients really take advantage of things like hybrid cloud? >>So yeah, so um what we have typically had been doing and I can give you a couple different examples if you will, you know, for larger clients. What we tend to be doing is helping them like I said, accelerate their business. So um, you know, they're looking to modernize their applications but they still have a big infrastructure in place and so they'll run into uh you know, budget constraints and and you know, cash is still be careful to managed. So for them we are much more typically focused on, you know, if you will project based financing that allows those cash flows to line up with the savings. Again, those are tend to be bigger projects that often go to boards that return benefit is very important. Ah a little bit different value proposition for more mid market customers. So, you know, as I was kind of just looking recently, we have a couple of different customers like form engineering um or or Novi still there to smaller uh compared to some of the other customers we use uh they are again much more focused on how do I, how do I conserve and best use my cash immediately? But they want to get this, they want to get this transformation going. So you know we provide flexible payment plans to them so they can go at the rate and pace that they need to, they can align up those cash deals with their budgets for their business cycles etcetera. So again, where smaller customers where timing of the cash flow in their business cycle is very important. We provide that benefit as well. >>You know, I wonder if I could ask you. So you remember of course the early days of public cloud, one of the first tail winds for public cloud was the pen was not the pandemic, the for the financial crisis of 2007. And a lot of CFO said, Okay let's shift to uh to an apex model. And now you can always provide financial solutions to customers. But it seems like today when I talk to clients, it's it's much more integrated, it's not just the public cloud, you can do that for on premises and again you always could do that. But it seems like there's much more simpatico uh in the way in which you provide that that that solution is that >>fair? Absolutely. And this might be a little to finance geeky, I don't know. But if you go back, well if you go back to the financial crisis and all that and at that time um a lot of people were looking to financing for you call that ah please. But you know if if I was talking about off balance sheet transactions right? Um and and you know between regulation etcetera etcetera, that that off balance sheet thing. First of all, people are seeing through it that much more clearly. But second, you know the the uh financial disclosure say you kind of have to show that stuff so that that if you will, window dressing benefit has gone away. So now which is great for me, we really get to talk about what's the real benefit, what is the, you know, what is the real benefit of? You know, you want to make sure that you have known timed expenditures. You know that if your business grows that your your expenses can grow evenly with those with that business growth, you don't have to take big chunky things and so you know uh financing under the covers of an integrated solution and IBM has a lot of those integrated solutions allows businesses to have that, you know, known timing known quantities. Most of the benefits that people were looking for from that affects cloud model. Um without, you know, some of the problems that you have, when you try to have to go straight to a public cloud for very, you know, big sensitive businesses, confidential confidential data etcetera. >>Thanks for that. So, okay, we're basically out of time. But I wonder if you could give us the bumper sticker and key takeaways, maybe you could summarize for our audience. >>Yeah. For those that noah global financing or dealing with IBM, my view would be in the past we might have been a little more, you know, out there with our own with our own banner etcetera. In the future. I think that you should expect to see us very well integrated into anything you're doing. I think our value proper is clear and compelling and and and will be included uh in these hybrid con transformations to the benefit of our clients. So that's that's our objective and we're well on our way there. >>Great. Anywhere, anywhere I'm gonna go for more, more familiar, obviously IBM dot com. You got some resources there. But there is >>there any Absolutely dot com? There's there's a thank you. Just probably a slash financing. But yeah, there's >>were >>loaded with information of people. >>Excellent brian thanks so much for coming to the cube. Really great to have you today. >>I appreciate the time. >>My pleasure. Thank you for watching everybody's day. Volonte for the Cuban. Our coverage of IBM think 2021, the virtual edition right back.