international business machine' (NYSE: IBM) The strategy centers on hybrid cloud computing and artificial intelligence (AI). In the cloud computing market, IBM's acquisition of Red Hat laid the foundation for its hybrid cloud platform. For large companies and organizations looking to modernize their infrastructure and applications, aim to save money, remove the burden of legacy technology, or deploy new technologies like artificial intelligence, IBM's hybrid cloud platform offers a way forward.
IBM’s strategy in artificial intelligence is similar. The company launched the WatsonX artificial intelligence platform last year to provide enterprise customers with a platform to develop, train, deploy and manage artificial intelligence models and agents. Since launch, IBM has booked approximately $3 billion worth of AI-related business and is now adding more than $1 billion in new business every quarter.
While these software platforms are central to IBM's overall strategy, it's the consulting business that ultimately does the bulk of the work. Large organizations need not only software but also guidance, solutions, implementation and other services as they go through complex and long-term modernization efforts. Companies with on-premises servers running outdated applications need significant help transitioning to hybrid cloud architectures and deploying new AI workloads.
Remember the $3 billion AI-related business? About 80% of these are consultation bookings, with the remainder coming from software. IBM's consulting business is a key differentiator for the company as it targets the hybrid cloud computing and enterprise artificial intelligence markets.
An important aspect of IBM's consulting business is its ability to build solutions for clients involving non-IBM products and services at no charge. Through a wide range of partnerships, IBM's consulting arm builds solutions involving competing cloud platforms, such as Amazon (Nasdaq: AWZN) Web Services (AWS) and Microsoft (NASDAQ:MSFT) Azure, as well as from companies such as Oracle. This agnosticism is one reason for the success of IBM's consulting business.
On Thursday, IBM announced plans to acquire global Oracle consulting firm Applications Software Technology. IBM competes with Oracle in several areas, but the company also recognizes that a large number of potential customers are currently using Oracle software. By serving these customers and their Oracle-related needs, IBM can attract new customers and potentially sell them more products and services.
Because much of Oracle's software is mission critical, customers undergoing modernization are likely to continue using Oracle software. With this acquisition, IBM expands its capabilities to serve these customers.
IBM's expanding strategic partnerships, such as with Oracle, are generating billions of dollars in business that IBM would otherwise not be able to win. In the cloud computing market, these partnerships are especially important. While IBM has its own public cloud platform, potential customers will likely want to use AWS, Azure, or some combination of the two. By building solutions that involve technologies that customers want or need, IBM opens the door to more business than otherwise possible.
Even though IBM shares are near all-time highs, the company is performing well and its platform and consulting strategies are paying off. The company expects to generate more than $12 billion in free cash flow this year, and that number is likely to grow further in the coming years. Based on that forecast, IBM stock trades at about 17 times free cash flow.
The Oracle Consulting acquisition may not be a major development, but it is another step forward in the company's consulting strategy. As enterprises race to modernize, IBM's appeal as a partner of choice is growing.
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Timothy Green works at International Business Machines. The Motley Fool has positions and recommendations at International Business Machines and Oracle. The Motley Fool has a disclosure policy.
IBM just backed this critical business Originally published by The Motley Fool