IBM Has Already Admitted 2026 Mass Layoffs (in 4Q Earnings Call)

posted by Roy Schestowitz on Feb 23, 2026

We showed this earlier this month, but some people bring that up again

IBM's forever layoffs [1, 2, 3] are not a matter of opinion, they are a simple, measurable, verifiable reality. Then there are the PIPs and the words coming out of the CEO's or CFO's mouth (albeit not in the mainstream media):

Here's the full thing: (for further context or scrutiny)

revenue growth, greater than 0.5 point of operating pretax margin expansion, double-digit adjusted EBITDA growth and about $13.5 billion of free cash flow. We exited 2025 beating all of these metrics, delivering 6% revenue growth, 100 basis points of operating pretax margin expansion, 17% adjusted EBITDA growth and $14.7 billion of free cash flow, growing 16% over last year. This represents our highest free cash flow margin in reported history, and we delivered 12% growth in operating diluted earnings per share. This performance reflects strong execution of our flywheel for growth. through client trust, leadership in hybrid cloud and Gen AI, accelerating innovation, deep domain expertise and an ecosystem multiplier effect. In 2025, we were intently focused on strengthening and accelerating our software portfolio, delivering innovation value with our next-generation mainframe launch, expanding our early leadership in Gen AI and quantum and executing M&A growth synergies across IBM. All of our segments accelerated in the second half of 2025 with these drivers playing out and demonstrating momentum across our diversified business. For the full year, software grew 9%, our highest annual growth rate in history with 3 of our 4 subsegments delivering double-digit growth rates. Infrastructure was up 10%, reflecting a record z17 launch, achieving the highest annual revenue for IBM Z in about 20 years and outpacing z16 over the first 3 quarters of the program. And consulting inflected back to growth in the second half, driven by Gen AI momentum with our Gen AI book of business in consulting at more than $10.5 billion inception to date. Let me now dive deeper into our fourth quarter performance. Software revenue growth accelerated to 11% on top of last year's growth of 11.5%, which was the highest in 15 years. Growth was driven by the strength of our recurring revenue base, our shift to higher growth end markets, innovation, including our early leadership in GenAI, M&A growth synergies and monetization of our strong IBM Z placement with an inflection in transaction processing. Our ARR was strong at $23.6 billion, up over $2 billion from the end of 2024. This quarter's performance was broad-based across our synergistic portfolio with organic growth accelerating to over 7%. Data grew 19%, fueled by the demand for our Gen AI products and strong performance with established strategic partners who enable customers to power our AI innovation and mission-critical workloads. These market dynamics underscore the synergy opportunity we see with Confluent. Automation grew 14%, including another record bookings quarter for HashiCorp. Red Hat decelerated to 8%, driven partially by the wrap on last year's elevated consumption-based services that we called out last quarter and also from the in-quarter yield on single-digit bookings growth driven by delays in U.S. federal business deal activity related to the government shutdown. While a longer growth arc, virtualization continues to gain momentum, including over $500 million of contracts signed over the last 2 years. OpenShift is now $1.9 billion ARR business, growing more than 30% -- and as we expected last quarter, given the record z17 placement this year, transaction processing inflected back to growth of 4%. Consulting revenue grew 1% in the fourth quarter, with Intelligent Operations up 3% and strategy and technology remaining stable. Performance was driven by steady demand across key offerings, business application transformation, application migration and modernization, application operations and cybersecurity as clients prioritize cost efficiency while continuing to invest in AI-enabled transformation. Our consulting generative AI book of business surpassed $2 billion in the quarter, our largest quarter of Gen AI, reflecting continued momentum. We are also expanding our impact through client zero, applying our generative AI experience in driving productivity and efficiency to help clients operationalize AI at scale. This practical experience, combined with our domain expertise is resonating with clients. While overall signings were down as we wrapped on record fourth quarter signings last year, the mix continued to improve with a greater share of strategic wins from both new clients and expanded engagements within existing ones. Infrastructure revenue grew 17% this quarter, with hybrid infrastructure up 24% and infrastructure support down 2%. Within hybrid infrastructure, IBM Z had another outstanding quarter, delivering its highest fourth quarter revenue in more than 2 decades, up 61% year-to-year, reflecting the enduring value of the platform and the success of our latest z17 program. Clients are investing in z17 for its differentiated capabilities, real-time AI inferencing, quantum-safe security and AI-driven operational efficiency, which are critical as enterprises modernize mission-critical workloads and scale for data-intensive environments. IBM Z continues to be the backbone of enterprise IT, enabling clients to integrate seamlessly with hybrid cloud while unlocking new levels of resiliency, scalability and performance. Distributed infrastructure revenue was flat with product cycle dynamics impacting storage, offset by growth in power, supported by solid adoption of our newly launched solutions. Now turning to profitability. In 2025, we delivered our highest operating gross profit margin in reported history and highest operating pretax margin in a decade, demonstrating the evolution of our portfolio mix and our laser focus on productivity. For the full year, productivity, mix and revenue scale drove expansion of operating gross profit margin by 170 basis points, adjusted EBITDA margin by 230 basis points and operating pretax margin by 100 basis points. And we achieved this despite absorbing more than $300 million of dilution from HashiCorp. Given the announcement of our intent to acquire Confluent, we accelerated productivity initiatives in the fourth quarter to help mitigate 2026 dilution, similar to our playbook on HashiCorp. Excluding resulting workforce rebalancing charges we took in the fourth quarter, operating pretax margin expanded by 140 basis points for the full year. Segment profit margins expanded by 100 basis points in software, 180 basis points in Consulting, with consulting margins at the highest level in 3 years and 450 basis points in infrastructure. For the full year, we generated $14.7 billion of free cash flow, up $2 billion year-over-year, resulting in the highest free cash flow margin in reported history. The primary driver of this growth is adjusted EBITDA, up $2.8 billion year-over-year, partially offset by increased investments in CapEx, higher cash taxes and higher net interest expense as we expected coming into 2025. Let me talk about our free cash flow evolution in a little more detail. Our repositioning to a software-led business, in addition to our cost discipline and productivity initiatives, drive significant operating leverage in our financial model. Since 2022, we have consistently delivered double-digit growth in free cash flow, well in excess of revenue growth, demonstrating this business model evolution. Our flywheel for growth and disciplined execution of productivity initiatives lead to sustainable and high-quality free cash flow generation. This durable cash flow engine enables us to invest in our business to accelerate growth. This includes increased organic innovation with R&D up about $2.5 billion since 2019. And it allows us to pursue highly strategic M&A transactions like Apptio, Software AG, HashiCorp, Data Stacks and Confluent that drive M&A synergies across IBM. Our diversified and integrated business drives a platform multiplier effect that uniquely allows us to deliver M&A synergies. This includes synergies from our global go-to-market distribution scale, platform synergies that amplify value with IBM's complementary offerings and operational synergies through our G&A discipline. Most recently, this can be seen with HashiCorp, delivering adjusted EBITDA accretion ahead of expectations within the first full year in IBM. Our financial flexibility fuels innovation and our disciplined capital allocation policy, including our commitment to return capital to shareholders. We exited 2025 with a strong liquidity position and a solid investment-grade balance sheet with cash of $14.5 billion. We invested $8.3 billion in acquisitions and returned $6.3 billion to shareholders in the form of dividends. Our debt balance ending the year was $61.3 billion, including $15.1 billion of debt for our financing business with a receivables portfolio that is almost 80% investment grade. Now let me discuss our expectations for 2026. Our strong performance in 2025 reflects the strength of our diversified portfolio and a multiyear execution of our strategic repositioning. Consistent with our Investor Day model, we expect to sustain constant currency revenue growth of 5% plus in 2026 and free cash flow to be up about $1 billion year-over-year, growing high single digits. Our revenue expectations are underpinned by our durable and accelerating software business, which we expect to grow 10% this year. This acceleration is led by organic growth, driven by the strength of our recurring revenue base, our shift to higher growth end markets, GenAI traction, M&A growth synergies and monetization of our record Z placement with an inflection in transaction processing, a tremendous source of profitability and free cash flow for IBM. And we continue to expect Confluent will close by the middle of 2026. In Consulting, our backlog levels and momentum in GenAI with backlog penetration over 25% support an acceleration in revenue growth to low to mid-single digits for the year. The powerful combination of our integrated platforms, services as software model and client zero experience allow us to deliver differentiated value to clients. We enter 2026 3 quarters into the Z17 launch. We expect infrastructure revenue to be down low single digits, about a 0.5 point impact to IBM, with Z growth in the first quarter balanced by product cycle dynamics throughout the rest of the year. The strength of our Z placement fuels our flywheel for growth with its attractive 3 to 4x stack multiplier across IBM. Let me now touch on our GenAI book of business before I turn to profit. We have been reporting our cumulative GenAI book of business since the third quarter of 2023 when it was in the low hundreds of millions of dollars. We exited 2025 with the GenAI book of business greater than $12.5 billion, demonstrating strong momentum in consulting and software. This will be the last quarter in which we report this metric separately. AI is now embedded across our business from how we deliver services to our software portfolio to the capabilities we are adding to our infrastructure platforms and how we drive our own productivity. As a result, a stand-alone Gen AI metric no longer reflects the full scope of how AI is driving value across IBM. For the full year, we expect IBM's operating pretax margin to expand by about 1 point. Our software portfolio mix and ongoing productivity initiatives continue to drive margin expansion and mitigate Z product cycles and the impact of dilution from acquisitions. Our operating tax rate for the year should be in the mid-teens, and the timing of discrete items can cause the rate to vary within the year. Let me give a little bit more color on Confluent dilution dynamics. We anticipate absorbing about $600 million of dilution from Confluent in 2026, driven largely by stock-based compensation and interest expense. We expect Confluent will be accretive to adjusted EBITDA within the first full year and to free cash flow in year 2 post close. We have multiple levers that underpin our confidence in these accretion targets, including revenue synergies, operational spend synergies and ongoing productivity savings. Revenue synergies include both the ability to accelerate revenue leveraging our go-to-market distribution platform as well as drive product synergies, which play out over time. We expect to realize about $500 million of operational spend run rate synergies by the end of 2027. We continue to accelerate our productivity initiatives and now expect an incremental $1 billion of productivity savings this year, driving $5.5 billion of annual run rate savings by the end of 2026. Taking this all into account, we are confident in our ability to expand operating pretax margin by about 1 point in 2026. For free cash flow, we expect to grow about $1 billion in 2026, in line with our Investor Day model of high single-digit growth. Given the strong fundamentals of our business, adjusted EBITDA growth will be the primary driver of our free cash flow, offset by similar factors as last year, including cash tax headwinds, higher CapEx and higher net interest expense. Looking to the first quarter, we expect our constant currency revenue growth rate to be similar to the full year. And for operating pretax margin, we expect about 100 basis points of expansion with workforce rebalancing fairly consistent with the prior year. Our first quarter operating tax rate should be in the mid-teens. We are excited about our prospects in 2026. Our growth accelerators, portfolio mix, integrated value and continued investment in innovation are driving sustainable revenue growth and strong free cash flow. As we shift toward a software-led business and speed our pace of innovation, our growth flywheel continues to strengthen. We enter 2026 with a solid momentum across our business and remain focused on disciplined execution with unwavering focus on productivity, enabling investing for the future and delivering value for our shareholders. Arvind and I are now happy to take your questions. Olympia, let's get started.

This is the same CFO tied to probable accounting fraud at Kyndryl. █

12 days ago: Threats From 'Former' Red Hat (Now IBM) Staff While IBM's Likely Accounting Fraud Attracts Public Scrutiny